Automatic Data Processing Stock

I'm Bryan Keane. I cover the Payments Processors and IT Services here at Citi. And we're excited to have ADP here for a fireside chat. We have Peter Hadley, who is the CFO and a long time ADP-er. I think it's been over 20 years, I think, at ADP. So he can tell us all the secrets of what goes in and out of ADP.

So I got a list of questions that I'll run through and then if you got any questions, you can just raise your hand and we can get a mic to you or I can ask a question for you. So with that, Peter, thanks for being here.

Thank you, Bryan. Good to be here. Thank you.

So, I got to start with the obligatory question about the macro. And since you guys have an incredible holistic view. What could you call out or what appears to be kind of the strength you're seeing in the macro versus the weaknesses? Anything in particular that maybe your data sees that kind of are interesting insights over the last several months?

Yes, sure. I mean it's a super interesting macro environment. Obviously, lots going on. Oil prices, I think, have been watching during the day, but I think over $100 a barrel now and inflation rates north of 3%, at least in the most recent print. But for ADP, the main factors that drive our business are actually pretty stable. So employment situation being the predominant one, very much still a low higher, low fire environment.

I think layoffs, and we get a lot of questions about layoffs that are -- you hear announced in the news, many of them technology companies and is AI driving this I think the real information we see in the macro environment with respect to employment, at least is a stable environment continuing to hire. We reported our internal metric of pays per control growth, which represents the number of pays on a same-store basis for client employee hiring was -- grew at 1% last year, again, with very low sort of layoff levels and relatively low new hiring levels, but the net of all of that around 1%, consistent with the year before.

We're expecting flat to 1% again in our fiscal '27 of which we're now in just started month 3. So overall, a very sort of consistent environment Other things going on in some of our businesses. So medical inflation or medical health care inflation in our PEO business continues to be high. We see that as each year as we go through the renewal process.

So a lot going on in that area. Yields to our client funds portfolio. We've been benefiting from continued high yields on the on the fixed income side of things. So overall, I would say the environment, not a lot of natural tailwinds to our business model, not a lot of natural headwinds. It's really quite a stable environment. And most importantly for us, the demand environment for our services continues to be healthy. And as you can probably appreciate, the level of compliance, rigor, regulation and so on.

And with respect to employment is not in any way diminishing and I think that helps in terms of continued demand for our services.

But even pays per control for you guys doesn't have a wild swing on the revenues. I don't know if you guys used to give the stat of like 1% in paid control only determines this amount of revenue? Do you guys -- do you still have that number?

Yes, it's around 25 to 30 basis points of our Employer Services segment revenue is impacted, if you will, that's the impact on Employer Services revenue from around 1% pays per control growth. So in our growth algorithm, bookings and retention are much more important drivers, if you like, than pays per control.

Yes. It gets a lot of the headlines, but it doesn't drive the...

It does get headlines, yes. It doesn't drive a huge amount of revenue, but it is high-margin revenue, movement in employee volumes. It doesn't really tend to meaningfully impact the cost to serve. So whether they're going up or down, tends to be maybe more of a driver on the margin candidly than on the revenues.

Got it. Got it. Wanted to talk about the big AI debate, and there was some misperceptions on maybe some of the AI risk in your guys' business in payroll, in particular. So the big question was, can I automate processes to disintermediate ADP and why not? Maybe you can just start there.

Yes. Look, I think AI can certainly automate processes where we're doing that ourselves. We're investing at scale in AI. From a disintermediation perspective, there's a lot more that goes on to our business than purely the -- call it, the AI-capable element. So there's a lot of -- we've been in business for nearly 80 years, building up sort of this critical infrastructure with respect to the banking rails, for example, we moved $3.5 trillion per year in the U.S. of client money.

Client payrolls running through ADP being dispersed to thousands and thousands of tax authorities and 1 million or millions, I should say, of employees. Again, the infrastructure around taxes banking to the security protocols. All of those things, I think, are not really areas that AI is addressing design to address and so on. Where it is very valuable I don't see it as a disintermediation factor, but I see it as something -- if you can invest in scale -- at scale and you have sort of the capability through data, through use case and experiences that we have, you could really train AI to be very useful in terms of client interactions, solving problems for our clients, for their client employees and also making our own workers more efficient, whether that's in our service and implementation area, increasing the effectiveness of our sales force and also our product developers and coders.

So we see it much more as an opportunity than a threat. So I think net-net, a positive. But having that data set, that use case history and the ability and balance sheet to invest at scale, I think, is really an important enabler for AI and it's sort of areas we believe ADP differentiates itself from the competition.

Yes. And I was hoping you could describe the capabilities of ADP Zone in a little more detail and how has this AI-infused platform gone from 10% to almost 50% of employees using it in fiscal year '26, and what are some of the benefits to the operating costs?

Yes. So The Zone is our proprietary platform. We have developed our own technology as well as using Salesforce technology, expanding sort of a longstanding relationship we've had with also salesforce.com, that is. And it's a tool we use now across our sales force, our implementation organization and our client service organization. So it provides different things to different to different elements of our associate base depending on what their job is.

But you can think about it as a holistic client platform, a CRM-type platform, but surfacing intelligence and capability to our employees. And as you said, we've now deployed it around 50% of, call it, those of the organizations that I just mentioned we expect to be largely fully deployed by the end of FY '27. What it does, for example, for a salesperson is it will really help organize their opportunities.

It will stack rank the opportunities that will give intelligence with respect to what that buyer may be looking for, again, based on use cases and history and data mining analytics it will suggest during a live call with a prospect, how the salesperson may want to approach the opportunity. It will help surface because we have multiple offerings, the best fit or potential best fit offering for that customer.

So really driving sales force productivity and effectiveness when it comes to implementation and client service, sort of similar, but in the vein of obviously more of an operational activity, helping solve client use cases. Again, it's really bringing together the history of that client plus the wider client base to identify common threads and trends to enable our service and implementation associates to remove friction from the process on behalf of the client and better serve them to give them a better outcome and at the same time, reduce our cost to serve.

And yes, so Zone can help drive revenue and lower the cost to raise margins.

Right. Yes.

And then how about ADP assist, does that -- is that more of a revenue driver for you guys?

Yes. ADP assisted sort of the overarching name we give to our AI program in terms of what we deploy into our products. So these are AI use cases and AI tools that product uses, which could be our own associates in the case of some of our outsourcing businesses but also with client practitioners and also client employees. So again, as an example of using a client employee, if a client employee was -- and one of the benefits -- sorry, just before I go into that, of ADP assist is it's also a proactive tool. It will analyze an employee or a client situation and proactively reach out to and prompt the users.

So for example, if you're an employee and you've moved from New York City to Connecticut, let's say, your pays statement will change as a result of the different tax regulations, maybe during the time of the year your pay statement might change with respect to hitting certain limits on 401(k) contributions or social security or whatever, we'll reach out and so to speak, and prompt the user for, are you aware your pay statement has varied? Your net pay has either increased or decreased, probably increased in my example. Net pay has increased taxes have come down. This is due to differential in state tax rates and hitting social security limits during the period.

So it's really a tool to surface insights. Many of the things we've done, candidly, for many years, but through calls and other things and also maybe have done a little more reactively prior to the AI or this is a tool that's helping solve these client issues that we've been solving for many years and also new use cases, but in a proactive fashion in an automated fashion and using the collective intelligence that with the mass through our massive data set as opposed to sort of just being able to serve a client on an individual basis.

So where do you think we are on the ADP journey with AI and both revenue enhancing and costs? Is it -- are we still in early innings? Is there going to be more product velocity coming? I mean, how do you think about the road map?

Yes, I still think we're very much in the early innings. We are meaningfully getting benefit from the AI we've deployed, whether it's in productivity and revenue. We have certain situations where we discretely will charge an incremental amount for additional functionality. In others, it really helps with -- like I was saying before, with reducing friction, improving client satisfaction, helping retention rates, helping us support sort of our price increase levels to the clients by delivering value and features in exchange for price and not just sort of an inflation adjustment on the bill.

So it has a revenue effect. Some of that is direct. Some of that is more indirect. It also has a cost opportunity that we have been starting to monetize, but I think more of that to come. So yes, net-net, a positive opportunity, I think, for the P&L.

Okay. Great. I wanted to turn to some of the numbers and I was looking through the 10-K and it popped out at me that the global business kind of grew 10% in fiscal year '26. I think that was up from 5% in fiscal year '25. And I traditionally think of it as a mid-single-digit grower. So it obviously has been growing faster global has. And I assume that's a lot to do with Lyric. But maybe you can just describe the change in global? And how does that look as we head into fiscal year '27? Does it go back to a normalized kind of mid-single-digit growth rate? Or can it stay at these elevated rates?

Yes. Thank you. Great question. I think the global business is one of the real opportunities we have at ADP. We're very happy with how it's been performing, again, really a big opportunity. We have a sizable business. We have around 70,000 clients and a couple of billion dollars plus of revenue there. But I still think there's tremendous opportunity there with respect to broadening our offer. Our offer is much more a payroll-specific offer outside of North America. In North America.

Obviously, we cover much more of the HCM pillars. And I think the opportunity to take more of that to global is something that's in front of us. With respect to FY '26, Lyric actually is maybe surprisingly not a major contributor. The majority of the Lyric business we have live today is domestic -- is more in the domestic space than in the global space, we've been talking about on some recent earnings calls, some European headquartered companies in U.K. and in France that have signed for Lyric again, with the implementation time lines for that product. Those clients -- most of those clients are still in backlog are not meaningful revenue generators at this point in time.

The growth rate in Global in '26 was driven more by our global payroll offering, which is continuing to perform really well. And as that's a 10-K number, it's also as reported. So there was some lift from FX in FY '26. We in our reportable segment of Employer Services, we called out a better point of revenue growth from FX that all lands in the global pillar, as you can imagine, so whether or not we deliver the same number in '27.

We don't tend to guide to these pillars we guide more to the reportable segments, but I would expect maybe some moderation in the FX contribution but continued strength in global payroll and hopefully more international business coming on board with our Lyric HCM offering.

Yes. So Lyric, I think live clients went up 94%. The pipeline was up 50% for Lyric. 0% new opportunities for logos. What's gaining traction so much with Lyric? And is that a key component to maybe a little bit higher revenue growth?

Yes, it's very much gaining traction. I think what -- what differentiates Lyric, if you like, from the competition. I think it's the newest enterprise HCM offer out there on the market. So very much designed in the AI era, very much designed with a flexible working environment in mind. And obviously, we all know sort of how the work environment has changed from the pandemic period or post the pandemic period with respect to flexible teams, dynamic teams, not necessarily the traditional HR hierarchies, which obviously the product accommodates, but it also accommodates sort of more fluid working environments.

And obviously, many of those things that have happened post pandemic. So it stands very much, I think, on its own a little bit in the context of its modernness and also we believe the AI capabilities that we were talking about a few moments ago that are built in the Lyric as well as a number of our other offerings. So I think it's -- we couldn't be more excited about how it's performing -- at the moment, it's very much a booking story.

The live clients, as you said correctly, grew 94% last year. Still a relatively small number though, in the context of ADP and our enterprise opportunity. The backlog is big and the demand in the pipeline is strong, and that's probably the thing that's most exciting for us at the moment. implementation time lines, particularly as you go further and further upmarket, which is the other area where we're really pleased with Lyric sort of started -- we started at the low end of the enterprise space, 2,000, 3,000, 4,000 employee companies.

We've been signing more and more companies north of 10, 000, north of 20,000 employees over the last 6 to 9 months. And I think penetrating sort of that true north of 10,000 enterprise space and also taking it into the international arena and selling to headquartered companies outside of North America, I think, is a tremendous opportunity for the future, but it will take a little bit of time for all of that to get into the revenue growth, just given the absolute size installed base in our existing revenues.

Okay. Great. I wanted to ask about HRO ex pass-throughs. I think it grew 5% in fiscal year '26. That was down, I think, from 7% growth in fiscal year '25 and there was a little bit of a rebound, I think that was called out in the ES HRO segment in fiscal year '26. So just trying to think about the 2 segment growth rates of kind of HCM and should they grow similar in that kind of mid-single-digit kind of growth rate?

Yes, I don't think they necessarily need to grow it. There's no necessary linkage, if you like, to the growth rates between the portfolio and the HCM portfolio. And again, these are sort of pillars we share in our external reporting. So the HRO pillar comprises from a segment perspective, the PEO business, and also what we call the ES HRO business, which is, call it, a managed service offering for payroll and HRO and time and things like that. So a couple of things.

The PEO business, which is, I think, well known to investors given it's a segment reported, we delivered 7% revenue growth, 5% x 0 margin pass-throughs last year. We had some headwinds, if you like, with respect to pays per control in that business, not particularly growing. I mentioned earlier, medical insurance inflation has somewhat of an impact in terms of being able to improve retention rates when medical insurance renewals are as high as they are. But bookings have continued to perform well in the PEO space, and in the ES HRO space, which is the other part of this HRO pillar that we share in our K.

We had a bit of a soft sales year in FY '25, particularly in the fourth quarter. It feels like an age ago now, but there's a lot of noise last year in the -- in FY '25 fourth quarter was liberation day tariffs. And I think it was a government shutdown too, if I remember correctly. So there was a little bit of pause, if you like, on decision-making in that space that we saw rebound quite strongly in FY '26.

So again, these are larger deals, more complex deals that take a bit of time to work through backlog to become live and revenue generating. So that -- some of that will come in '27. Some of that might feed through into FY '28. But the underlying health of the HRO portfolio is strong as is the HCM portfolio.

And so just sticking on the PEO business, the ex pass-through, I think that's growing somewhere in that 3% to 5% range. And then the WSE growth is only 2%, which is a little bit lower than maybe normal. What's it going to take to get back to the kind of midterm targets for PEO to be in that 6% to 8% growth?

Yes. So the midterm targets were a total revenue target. So we were happy last year in '26, we finished at 7%, so squarely in the range and that contemplates the 0 margin pass-through piece 0 margin pass-through as we hit 5% last year, which we felt was pretty good, all things considered. And like I mentioned, sort of growing worksite employees is a little tougher in that space at the moment just given hiring levels in the PEO client base and also medical inflation having an impact on how much we can improve our retention.

We did improve our retention in '26. We also improved it in '25, but relatively modest improvements, and I think that was understandable for us given the inflation environment in health insurance. But the main driver, Bryan, in terms of sort of the current PEO growth rate levels versus where they were 3 or 4 years ago is a hiring situation. So again, we were seeing sort of 4%, 5%, even 6% pays per control growth within a number of years ago, that's much more in the 0% to 1% range now, and that's having an impact on our revenue growth versus where we were in the low teens or high single digits a few years ago.

But 7 and 5 last year is we were very pleased with and our guide this year, at least at the higher end is for similar levels, we'll see where we land during the year.

Yes. That WSE growth, is that a little bit out of your hands, it's kind of dependent on the market?

It's partially in our hands and partially out of our hands. So the booking side of it is very much our ability to execute and drive bookings. We had good bookings, healthy solid bookings in FY '26. We're expecting the same again or better, hopefully, in '27. That piece we can control. I think the retention we partially control through quality of service and the relevance of the offering to our client base, part of it becomes a little bit -- I don't know if not controllable is the right word, but some of it is down to companies wanting to switch hoping that they can find maybe some better benefits pricing by going to a different provider.

Some of it is our own declination rates on clients that don't meet our underwriting levels with respect to how they're performing in the book or potentially as prospects. So there's, I would call retention partially under our control, partially driven by the market and the pays per control piece really is client decision-making on hiring levels. So hard for us to impact on that.

Got it. Got it. ES grew 6% organic in the fourth quarter. I think you guys called out pricing was up north of 130 basis points. I think it will remain that level in fiscal year '27. Maybe talk a little bit about what's driving price. You're getting a little higher price maybe than the normal 100 basis points cadence. I know we're talking about 30 basis points. But I'm just curious, I think the market might think that there be pressure with competition in price. But actually, you guys are getting a little pricing power instead. So I just want to understand that. And then maybe about what's new client growth look like for you guys?

Yes. So I think on price, again, the world sort of changed, I guess, with respect to the pandemic period. So before the pandemic, we were more averaging around 50 basis points of contribution from price. We -- since the pandemic, we've been in more the 100 to 150 basis point range. So '26 was sort of squarely in line with, call it, the post-pandemic expectations. We expect similar in FY '27. Some of it is the macro environment and where inflation sits and obviously, as we all know, I think many things, whether it's suppliers or pricing or whatever that has all somewhat risen that rising tide has lifted all boats there.

But the other piece of it, and we're very careful on price to take what's appropriate, but not to push the envelope, notwithstanding we have a very sticky business. we definitely want to retain our clients, retain them as happy clients, have them buy more from us around half of our bookings. As you know, come from our existing book of clients, headlines referring us in the market for new opportunities. That opportunity we see is larger than what we might be able to glean short term from excessive price increases, if that sense. So I think how we feel comfortable with it. The pricing equation is a little bit the macro environment. We're also very much what we're delivering to clients through our products, our solutions and our service.

And back to the AI point, as I was saying earlier, we monetize a portion of that through -- just through -- as opposed to specific items on the invoice through our general price increases and adding that increase and improved functionality and capability in our solutions gives value to our clients that we feel they're happy to pay for through incremental price, and we're happy to take what we can, but not to get too greedy.

And then what about new client growth? How has that trended versus historical?

Yes, client growth continues to trend. I mean, we're a large company with getting close to 1.2 million clients. So now if I look at what we reported in our K, we had mid-single-digit growth in our downmarket solution RUN. We continue to see growth in our Workforce Now, solution which supports the mid-market. Both the PEO, HRO and the traditional HCM tech offering in the mid-market, we're making headway in the enterprise space now with Lyric and with Workforce Suite and our global payroll offering.

So we feel pretty good in terms of where we're tracking on market share. I think we have more opportunity in front of us. We're beating a number of our competitors when it comes to our balance of trade, some competitors. We are still in a position where we're in a negative position, but generally an improving position. So more opportunity there, but I think execution has been pretty good.

New bookings growth, I think, was 6%. It felt like it came in pretty well strong for you guys in the fourth quarter. How does the pipeline look to grow in fiscal year '27. I think you guys guided to a 4% to 7% kind of new bookings growth. But what -- how does the pipeline look when you finish strong is that? Do you have to replenish the pipeline? Does it take a little more time to build?

Yes. So in terms of pipeline, that's typically more in enterprise, maybe upper end of the mid-market enterprise concept for us. We did have strong bookings in those segments, as we mentioned in the in the fourth quarter. So there is an element of replenishing, but we're always working on the pipeline. So we feel good about the pipelines entering FY '27. We're now still in our first quarter, but -- so we'll see how the results pan out. But there is an element of that, that might have a bit of a seasonal impact, if you like, or a cyclical impact in the early part of the year, but not unexpected, not something we haven't dealt with before.

I think more in the mid-market, down market space, the more -- it's more of an activity-based business. And again, our sellers continue to sell well. I think we have some offerings that are really resonating, in particular, we called out our retirement services business, more than 200,000 clients now more than $1 billion in revenue. So we feel like we're well placed, both from a pipeline activity perspective, also from sales force investments in terms of head count being on board, some of the tools we spoke about earlier that have been deployed and continuing to be deployed across more and more of our sales force, and we feel like we're well placed for a good year, but there's much work to be done.

The number, as you would have seen, as we delivered last year was $2.2 billion in bookings. So that's a lot of bookings larger than many of our competitors' installed revenue base. We have to sell each and every year just to grow our bookings. So much to be done, but we feel like everything is in place and we have a lot of confidence in our sales force to deliver.

So if you think about Workforce Now and Ron and Lyric and Workforce Suite that you're now selling, is there any areas that are going to have outsized growth probably that will carry a faster growth rate to it versus the other maybe segments of the business?

Yes. I think on the bookings number, I think the enterprise products are probably the ones that will contribute most to the to an improving growth profile, if you want to call it that. Some of that's a function of the fact that they're newer and the starting point is a little smaller, but -- but we called out Lyric and Workforce Suite as the two largest dollar contributor to contributors to dollar growth in the bookings in FY '26. We'd expect that likely will probably continue in FY '27.

So I think that's really the hot -- relatively speaking, new hot hand for us. We continue to perform and execute really well in our established businesses in the mid-market in the down market. So I see enterprises probably the opportunity to bend the needle on bookings. Again, that's the one that takes the longest in the curve on revenue, but it's also the traditionally the longest retention business and the highest retention business on the longest client life business. So it's a long -- it's a bit of a long game when it comes to the enterprise space, but yields great rewards if you're successful, and we feel like we're making all the right steps in that direction.

How fast have you guys been growing the sales force? Or are you cutting sale? Just remind me on Salesforce for fiscal year '26 and then what are the plans for growth or for terming the sales force in fiscal year '27?

Yes. So we grew the Salesforce in '26 and we expect to grow in '27. I would say we grew mid-single digits or low to mid-single digits in '26 and '27, roughly similar, maybe slightly smaller in terms of head count growth, but not meaningful, still growing our head count we see still plenty of opportunity to add sellers, and we look to do that. But we're also investing pretty heavily in our channel alliances and distribution strategies there in more top of the funnel sort of marketing and lead generation activities.

So there's really a raft of different approaches and investments we take in our sales and marketing organization. Headcount is one of those. But we have growing that head count, and we expect to continue to grow that headcount.

Okay. We got a little over a minute left, but I have to ask about the EBIT margins. Over the medium term, I think you guys have guided maybe the 50 to 75 bps of margin expansion. You've guided a little ahead for this fiscal year, 70 to 90 basis points above -- or above fiscal year. Can you just talk a little bit about what's maybe driving a little faster margin cadence? And kind of as you go out in the medium term is 50% to 75%. Is that still the right number, given maybe some of the efficiency gains you're getting on the AI side?

Yes. Yes. So we delivered 80 basis points last fiscal year. And again, as you said, we guided 70 to 90 this year. So we're not necessarily revising our midterm objectives that we set about 18 months ago. But I would say we're a little ahead of where we expected to be in that progression. And I made that comment on the last 2, I think it is earnings calls. So we feel that that's not a temporary phenomenon. Float continues to be very durable for us. with yields and also balances continuing to grow, so that's an important element.

But really what's lifted the delivery, if you like, has been the -- some of the productivity efficiencies we've been realizing from our AI investments and also other investments we're making in products. So we feel like this is a sustainable level that we delivered last year. We expect to deliver this year. I think -- it's a bit early for me to be talking about '28 onwards, but I would consider that to be more of a -- where we're at now to be a sustainable sort of level of margin delivery, and I'm not expecting to sort of regress somewhat to maybe at least the lower end of those ranges that we gave 8 months ago from a medium-term guide perspective.

I'm going to sneak in one quick one on just capital return. Any -- we've seen some companies be a little more aggressive with stock buybacks, maybe a little more aggressive on dividend. Just quick thoughts on how you are thinking about it currently.

Yes. So we've been, at least in the ADP terminology, we've been more aggressive on stock buybacks last year. We did a little over 2% of our shares outstanding last year. Our typical cadence has been to retire around 1% of our share count. So we saw value in the stock. We still do see value in the stock. We issued a note last year in May, I think it was for $1 billion to help us continue at those rates basically through FY '27. So we expect continued elevated share repurchases, absent some sort of major change in the market condition through the rest of FY '27 as well.

So the dividend continues to be very important to us, 51 years of consecutive dividend growth. We'd expect that to continue to grow. Board approval, obviously required later in the calendar year, but they're likely to grow. But certainly, on the share repurchases, we have the balance sheet capability to continue at this elevated clip without impacting our ability to invest organically in the business and also about the impinging on our ability to look at strategic M&A opportunities as well. So I would expect our shareholder returns to continue at the clip that we're delivering at the moment, at least through the end of FY '27.

Great. Well, with that, Peter, we'll leave it there. Thanks for coming.

Thank you, Bryan. Appreciate it.

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. [Operator Instructions] 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 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 3 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, but 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 '26 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 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 2 other standouts from our full year results. Employer Services retention again exceeded our expectations and remained 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 remains 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 '27 confident in our ability to continue winning new deals and create operating efficiencies that will help drive adjusted EPS growth.

Now let me take you through the 3 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 '26, 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 serviced 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 2 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 3 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 '26, 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 scale the Zone, we saw a 4% decrease in contacts per client in fiscal '26. When you view this against the backdrop of the millions of client contacts we have each year, this is a 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 operational capabilities, process expertise and technology to execute it, payroll updates, compliance navigation, regulatory filings, people infrastructure across every jurisdiction, every workforce model in 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 framework 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. This 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 cannot 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, with 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 service model is built for, the challenges and opportunities of workforce redesign, create complex HR compliance situations where human judgment is irreplaceable.

Our associates are trusted advisers 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 tenant 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 check box.

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 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 in 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 and that is showing up in the homes. We saw a record high seller productivity in fiscal '26, 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. But is this the right discussion?

I see it differently. I believe, and 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 moment 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 organization that get this right, that invests 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 has 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, and 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 capped 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 segment's revenue growth came in at the high end of the guidance range, bringing total fiscal 2026 revenue to $21.9 billion. In FY '26, 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 '26 guidance ranges. Hiring trends in our client base remained consistent with ESPs 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 stem 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 and 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 a healthy improvement in PEO retention in fiscal 2026, driven by record client satisfaction levels.

Given continued elevated health care 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% to 6%, driven by the following key assumptions. We expect ES new business bookings to grow by 4% to 7%, reinforced by our investments in sales force head count 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 results. 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 head count at scale.

We expect FX to move to a slight headwind to revenue growth in fiscal 2027 after it provided about 1 point of tailwind ES revenue growth in fiscal 2026. And 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% to 4% in fiscal '27 compared to the 7% growth experienced in fiscal '26, 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 to $1.56 billion in fiscal 2027. Meanwhile, we expect that the net impact from our client fund strategy will increase from $1.31 billion in fiscal 2026 to a range of $1.545 billion to $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% to 7%. PEO revenues, excluding zero margin pass-throughs to grow 3% to 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 '26 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% to 6% growth in fiscal 2027 and we expect adjusted EBIT margin expansion of 70 to 90 basis points. We expect our effective tax rate to be around 23% and fiscal 2027 adjusted EPS growth of 9% to 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 '27 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 a runway to sustain this level of activity.

And as we explained on last quarter's call, this deliberate return of capital to shareholders comes in addition to our long-standing 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.

[Operator Instructions]

Our first question comes from Mark Marcon with Baird.

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 in international. I went to the payroll Congress and also to Shram, when I talk to your salespeople, they all indicated that there was a lot of interest in Lyric. So 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. Mark, and thank you. I appreciate the congratulations. We are incredibly proud of the quarter when we put together, the year we put together to kind of start on the new business bookings 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. And I want to take a moment and really congratulate them just an incredible run through the finish line and certainly the sellers and the sales leadership in order 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.

And that kind of 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 expands both of those markets. I made a few of those comments during the the prepared remarks with respect to some of the deals that we saw across that finish line in the fourth quarter in terms of international deals and really involving that kind of trisector story between global payroll, global HR and Global time. So excited to see the momentum there. But I think what you're referring to specifically that you probably would have heard from the sellers at Sharm 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. And 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. And that again, to me, as 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? And finally, as we're looking at fiscal '27, the guide range for new bookings is similar why to last year. Just wondering what the key areas are you expecting SMB, international and enterprise to kind of 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. So 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. But 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 and the land of competition. And we are definitely winning more. And 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 4 or 5 years on earnings calls talking about everything happening around the world and just how complicated the international space is. And 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, 4 out of the 5 last quarters, international has contributed significantly to the growth in bookings. So I think overall, that kind of gives you a picture around the win rates. Maybe, Peter, if you want to kind of comment on the bookings guide as we step into '27.

Sure. Thank you, Mark, for the question. No, 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 started again at zero every July 1 and continue on. You can rest assured, we're obviously striving to maximize the outcome every single year. But at this point, I think from an investor perspective, we feel it is responsible and prudent to guide to a range and 3 percentage points, I think not overly large in the context, particularly as what Maria was talking about, we have more and more of these large deal opportunities. If I look at FY '26, the 3 largest contributing units in terms of our bookings growth from a dollar growth perspective, were Lyric the workforce suite and our global payroll offering.

So that can really be a relatively small handful of deals as to where we land in the range and I can assure you, as we were coming up to June 30 here this year, all hands are on deck to land the number, and I'm sure that will be the case again in FY '27.

Our next question comes from Jason Kupferberg with Wells Fargo.

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, like 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 site. 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. And I think that's not new to us, right? So clients often turn to ADP.

The simplest way to think of that is 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? And what do others in our industry do? So 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 kind of the shift in the workforce. And I think that is only amplifying our ability to help our clients navigating.

So 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. But 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, Lyric our global offer. As you think about the connectivity between time and global payroll and global HR in and of itself, the other callout 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 kind of 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. And so I think it's always been there, would be my answer, Jason. But 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. But 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 as a revenue element of your question. So 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 with and 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. And again, those services are typically charged for as part of the implementation as well.

Okay. That's helpful. And Peter, just a follow-up question on the guide for F '27. So if we look at the ES guide, excluding float, it looks like 4% to 5% growth. I think that's a little lower than the Street expected. Float guide is actually ahead of, I think, what the Street was anticipating. And the 4% to 5% would be a little bit below, I think, the 6% we saw in fiscal '26. So just curious whether there's any drivers or call-outs there because obviously, bookings did come in quite solid in F '26.

Yes. Sure, Jason. Yes, I think the 2 main things that are shifting, if you like, between FY '26 and FY '27 free us revenues. So we did have some contribution in the first, it's a while ago now, but in the first quarter, early in the second quarter from the workforce Software acquisition before that anniversary. So there was about 30 basis points or so of revenue growth contribution from that. We also had some pretty strong tailwinds last fiscal year in -- when it comes to FX, and we're expecting, as I think I mentioned in my prepared remarks, some slight headwinds on FX this year. So the float is continuing to be very durable and perform strongly on this basis of strong balances, good wage growth, and obviously, move through the interest rate curve that our laddering strategy delivers for us.

But I think on the underlying drivers, call it, ex float, ex FX, we're not really anticipating any slowdown. Obviously, we provide a range of outcomes with respect to guidance that investors can rely upon, but 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, but at the beginning of the fiscal year and obviously, things can develop and evolve as we go through the year.

Our next question comes from Samad Samana with Jefferies.

Good to see strong close to the fiscal year. Just maybe as I think about the bookings composition in fiscal '26 versus the assumption for '27. I'm just curious if you think about FY '26, it sounds like SMB is strong. How are you thinking about the different components of the portfolio in that FY '27 guidance? And where do you think -- are you -- do you think the same factors will go to strength in fiscal '27? Are you expecting a different composition, especially with Lyric ramping? .

Samad, thanks for the question. I mentioned in my prepared remarks, we're anticipating sort of broad-based contribution in FY '27. I feel we had broad-based contribution in '26 as well. Maria called out a number of areas we can't call out necessarily every area to become a little monotonous perhaps. But generally speaking, we had -- we were very pleased with the broad-based contribution across the board, is real strength in some of the down market offerings, retirement services, Insurance Services, in particular, ESHRO. If you remember this time last year, we've had a little bit of a softer finish on ESHRO that really rebounded very strongly, both in Q4 and throughout FY '26, sorry. We're expecting similar in '27. So the assumptions at this point in time really are a continued broad-based contribution across the portfolio.

Great. And then 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? And what the contribution of pricing would be? How was that in fiscal '26? 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 '27? .

Yes. No, of course. We actually finished the year a little ahead. So 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, so call it, a little north of 130 basis points in FY '26 and our outlook for FY '27 contemplates similar to FY '26. So again, a little ahead of what we were talking about, what is that 13, 14 months ago at Investor Day.

Our next question comes from Bryan Keane with Citi.

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 and maybe some revenue opportunities AI provides for you guys kind of as we go into the future here.

Absolutely. Thanks, Bryan, and 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. So 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.

And so 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. So 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 of comments around how we're thinking about it through next year or in the out years. But I think it's, call it, early days as some of these things continue to bring value and evolve for us.

Yes. Some of it, Bryan, is we capture, we believe, through our pricing. I was just talking to Samad a moment ago about pricing. So 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 marketplace and API Central, where we had consumption-based pricing for API calls and and interactivity between agents on the marketplace and ADP. So it's a bit of a mixed bag between discrete pricing and items, so to speak, on the line items, so to speak, on the invoice versus sort of inherent in the pricing equation we have with our clients. But certainly, monetization is obviously important and something that occupies our thoughts as we're continuing to deploy these technologies and build our strategies around them.

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

Yes, absolutely. I mean we spoke about that last quarter, as we lifted our guide, and we're pleased to deliver at the high end of our guide for '26. I think that's implicit also in our guide. There's obviously many things going on in the margin float clearly is one of the contribution from AI and productivity, not just AI, there's also product innovation and things we're doing, some of the tools we're deploying, which again, as Maria said, our AI infused it's in the fabric of what we do the sales force and to our operations teams.

So it's an important element in terms of contributing to the margin. I think we're -- as I mentioned in my remarks, -- we're still in the early innings. So I think more to come with that. But I spoke sort of at length about it last quarter and would reiterate what I said then now, which is we definitely see a path to this delivering an accelerated level of margin delivery. And I think we've sort of started realizing that in '26 and we're out of the gate a little higher than sort of where we thought we would be maybe a year or so ago in FY '27, if I referenced back to Investor Day and we'll see what comes beyond that, but we're certainly bullish and excited about the opportunity on many fronts, margins being one of them.

Our next question comes from Tien-Tsin Huang with JPMorgan.

You're executing really well clearly here. I'm just curious, Maria or Peter, just thinking about the fiscal '27 outlook, a lot of questions already, but it's very similar to what you initially guided in '26 except for it looks like slightly lower employment growth and a little bit more margin expansion. And 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 '27 growth or this year versus last year? Where do you maybe see a little bit more execution risk and changing your priorities, that kind of thing, Maria?

Yes, absolutely. You're absolutely right as it relates to kind of the guide for '27 being broadly aligned to the guide for '26, 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 '27 is how we feel about '26. I think the macro backdrop feels largely aligned as it relates to whether it's on the bookings side, the retention side. It's hard to even remember what was happening a year ago. .

But I would say, generally speaking, we feel optimistic stepping into the '27 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. But broadly speaking, I would say the feeling sitting here at this table is that we feel constructive and strong stepping into '27 and largely in line with how we felt stepping into '26.

Yes. 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. But in terms of relative confidence, if you like, or certainty visibility on the outlook, I think probably the one thing that that makes me feel more comfortable now than maybe a year ago is the bookings finish that we had in FY '26, strong bookings finished. Obviously, some of that is already live through the down market type business, but our backlogs are in a little bit better position as you go sort of into the mid and upmarket, where they were a year ago, ESHRO, again, stronger backlog than where we were a year ago. So it becomes then obviously an execution play. And obviously, we need to continue that growth. So 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. Yes, look, stability, that's the hallmark of ADP. So glad to hear it. Just maybe my quick follow-up just on the -- 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 comments that you shared?

I think I'll start by saying, and 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 2 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 I think we've built tremendous muscle here at ADP on the heels of what was and is the largest acquisition to date. So I think we're always open for business. That's not to suggest we have any well-laid plans, but 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. And so I think I would say we're always open for business. I think Peter, maybe if you want to comment about how it is that we kind of approach that pipeline and the things that make sense to us and don't make sense to us.

Yes. No, I would fully agree. I think the success of the integration of Workforce software as we now refer to Workforce suite would say the me engine and again are not foreshadowing deals, but would say to me that there's no need for us. And we've not designated this year as sort of an organic only year. I think 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.

So 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. And as she mentioned, we are always actively looking. We are quite picky in terms of what we think would makes sense for ADP and selective, and we'll continue to do that. But certainly, as Maria said, open for business.

And just on the -- the last piece for me, I guess, is in terms of our ability and our balance sheet, as you know, a very strong balance sheet and capability to fund most of the type of deals that we'd want to look at. So definitely open for business.

Our next question comes from Dan Dolev with Mizuho.

Maria, 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. And 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 conversations you've had with clients and just to kind of make the point on the resiliency of the software offering, et cetera. I think that would help a lot with investor conversations.

Thanks, Dan. It's -- I'm glad you asked. It is a great conversation. This dialogue that we have consistently been having, whether it's with investment community, our associates, the broader market or certainly our clients around ADP's structural advantages is an important one. And we have many as it relates to the things that are durable through the 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.

And so 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. So 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. And so we often talk about AI is only as good as the data that it's built upon, and 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.

So 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, 1 in 6 wage earners in the U.S. that we pay. So this is incredible data. And it's not just that data, as I mentioned in the prepared remarks, it's the wage data by task that is a clear separator for ADP. And again, 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.

So that's kind of the data piece. The other is the domain expertise. Again, 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. And so we have this in droves across ADP's 67,000 employees, the deep domain expertise that we have and 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. Again, I noted 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, but highlighting the one that I think matters more than anything right now. It is trust.

And ADP is proving itself to be that trusted reliable source the clients and again, economists, academics, everyone is turning to. And 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, but it's also everything I mentioned in the prepared remarks around our approach to responsible and ethical AI. It kind of comes hand-in-hand with the 3 letters of ADP in terms of how we think about our responsibility to the world and our responsibility to the workers and their data.

And I think trust is everything right now in this world that is evolving so quickly with respect to AI. So I think all of these things categorically put ADP at the front of that HCM software category. And that is why I'm so optimistic about our future. But 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. And it's great to be at the tip of the spear of that category.

Our next question comes from Daniel Jester with BMO Capital Markets. .

I appreciate the update on the Zone and beating sort of 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. So maybe can you just share about what that ramp looks like, the change management you're doing internally? And as we think about fiscal '27, should we expect 100% penetration? Or how should we expect the ramp?

Absolutely. We have high aspirations for the Zone, and I appreciate the commentary around the progress we've made. You're absolutely right. So 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, but we are deploying them with purpose in each of the each of the groups. And so 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.

So 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. And so 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 '27. Our goal is to be broadly deployed across the entire ADP landscape with respect to sales through fiscal '27 and with respect to the U.S. kind of service population throughout fiscal '27. So 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 the 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 '27 to make sure that we continue to deliver those incredible client satisfaction rates.

And just maybe a quick follow-up on that. Since you've had -- you commented about sort of 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 head count investment maybe over the medium term?

Yes. Thanks, Dan. I'll take that one. So again, we -- I mentioned earlier in the prepared remarks, our 67,000 associates we finished last year being FY '25, also at 67,000. So we've had some questions prior to that about sort of the growth we've had sort of coming out of the pandemic. We've leveled off in terms of our head count in FY '26 at the same time as continuing to invest and add the head count in certain targeted areas such as sales and marketing, such as product and technology. So the counter to that, so to speak, is some of the head count efficiencies and reductions that we've been able to achieve in service and operations.

The Zone is part of that, some of the AI tools in addition, either delivered through or in addition to the Zone are a part of that. And so like we don't really have like head count numbers that we guide to a necessary target to be resource against the business opportunity in front of us. But my general expectation, if you're looking for some sort of perspective is would be probably relatively flat overall, but with additions in targeted areas and efficiencies being realized through head count in other areas.

This concludes our question-and-answer portion for today. I'm pleased to hand the program over to Maria Black for closing remarks. .

Thanks, Michelle. So 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'm just the lucky one that gets to get on an earnings call to Peter and share it with all of you. The performance in fiscal '26 is one I'm very proud of. It's 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.

And our culture is anchored and fueled by the same founders 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. And that's exactly what our associates are doing and continuing to prioritize as they put our clients first. And so I'd 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's the power of ADP's people, anchored with great innovation, and it's truly what we're built for. So thank you to the ADPers out there listening, I truly, truly I'm 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.

All right. I'm Jared Levine. I cover software and business services here at TD Cowen. With us today for a fireside chat, we have the CFO of ADP, Peter Hadley. ADP really needs no introduction. So let's get right into the discussion here. We can open it up for any audience discussions towards the end here. So with that, Peter, thank you for joining us today.

Thank you for having me, Jared.

Let's start with the obligatory question on the demand environment. I guess how would you characterize the current state of the demand environment? Where are you seeing the strengths and weaknesses?

Yes, good question. I think the demand environment is very constructive is the word we use, consistent, not a lot of obvious sort of tailwinds or headwinds, I would say. So it's a pretty stable environment. And by the way, we see that across the board, not just in 1 or 2 segments. It's really -- as you -- I'm sure many of you know, ADP covers all segments from the smallest of small businesses up to the largest of multinationals domestically, internationally.

We have outsourcing offerings. So really, I think demand has been really consistent and stable, I guess, throughout our fiscal year. We're in our fourth quarter at the moment. As you know, that's a large quarter for us in terms of bookings. So I touch wood and say, hopefully, the demand environment certainly holds out for a strong finish, which we are looking forward to. But I think the demand certainly for the type of services we provide and the assistance that we're able to provide to employers and their employees continues unabated, which is great.

Great. Let's touch on that Employer Services bookings there. It was a key focal point of investors following the recent 3Q print. ADP has guided for the year 4% to 7% growth. I guess how is the company feeling about that 4% to 7% guide based on year-to-date performance?

Yes. I mean as we mentioned in our third quarter earnings call back in late April, we reiterated the guide. We've held the guide consistent all year. As I was saying a moment ago, the fourth quarter really is the largest quarter in terms of bookings for us. It's the nature of our cycle, probably to some degree, nature of the incentive systems we have in place for our more than 8,500 sellers. 3 points to some might seem like a wide range going into a quarter. I would say, with respect to bookings, there's still a lot to do. There always is in the fourth quarter.

We feel good. We have -- our team is fully staffed, fully motivated. We have all the incentives and so on in place in the system. Our pipelines we mentioned going into the quarter continue to be healthy. I think the macro environment, like I was saying a moment ago and demand environment continues to be stable, not necessarily a tailwind or an obvious headwind, notwithstanding all the things going on in the world.

So we feel good about our ability to deliver a strong bookings year. Certainly -- where that lands in the range, we will be the wiser, I guess, once the year closes. But a lot still to do, but we have plenty of really talented salespeople with great products in their hands out there doing their very level best to finish the year strongly and give us a great result.

Great. Let's double-click on 4Q specifically. A key question we've gotten is how to think about that dependency on 4Q. Anything you can kind of help us with in terms of thinking about that dependency, whether it's the typical mix of bookings for a year as we think about 4Q and that dependency?

Yes. We don't disclose sort of the quarterly dependencies. All I would say is it's the largest quarter of the year. It's certainly more than 25%, obviously, by definition. So it's a big quarter. We -- obviously, we had a little bit of a shortfall last year in terms of our fourth quarter finishing up, not by a huge dollar amount. Again, it's sort of missing a range, is sort of unexpected with respect to ADP, but there was not a meaningful drop in terms of dollars. It hasn't had any real obvious effect on our revenue growth. I don't think -- but there's still a lot to do, and it is the most important quarter for us.

The third quarter is also an important quarter, the quarter we just finished. We mentioned on our earnings call that we were pleased with the results. It was a solid quarter. And probably the most pleasing thing, I think that we've seen throughout the year is it's really been broad-based contribution across our portfolio. We're not concentrated to the results of 1 or 2 particular segments. So again, we feel good, but more will be revealed at our next earnings call once we do close out the year and hopefully get as many fish in the boat as we can.

Great. One last one on Employer Services bookings, and I'll promise I'll move on here. So last year, you did grow bookings 3%. This year, the company is trending to right around 5% organic constant currency ex float growth, I guess, which is comparable to the prior year performance. I guess based on this, is bookings implied to be accelerating off of that 3%? I think the only difference this year to probably point out was maybe slightly better pricing contribution. I guess can you help us kind of rectify those differences?

Yes. I mean there's a lot of drivers, obviously, in our revenue. The model and the indicators we talk about publicly are certainly the most key ones. But really, there's a lot that goes on. We have a lot of different businesses that include different revenue models. Some of them are not all necessarily tied to bookings when I go to some -- for example, some of our data businesses and B2C offerings and so on, asset type revenues in our retirement services offering.

I would say, again, like I was saying before, the 1 point or so of bookings, again, we certainly would prefer to have it than not have it, but it doesn't necessarily have a meaningful impact on a full year revenue for Employer Services or certainly for ADP. I think I wouldn't necessarily draw any inference on the trends. I think the fact we're still guiding to a range of 4% to 7%. And last year, we finished at 3% probably implies what you're saying that we're expecting a stronger full year result than what we did last year. But again, we'll know more about that in a couple of months.

Great. Let's pivot here to the PEO. So the health insurance enrollment period typically is the primary period for your PEO clients to churn, which for you occurs on July 1. Some of your competitors have cited a drag to retention rates from the outsized health insurance price increases that they have to pass through on to clients. I guess how are you thinking -- feeling about the level of price increases you're passing through for this upcoming enrollment period?

Yes. So just as a reminder for everyone, we operate a fully insured model when it comes to the PEO health insurance program. Not all of our competitors do that. In fact, I don't know that many of them offer a fully insured model. Again, all PEOs are a little bit different. The segment of the markets we look for, we are much more in the white collar, gray collar space from underwriting purposes, both for medical and also for workers' comp.

Others perhaps play a little more in the blue collar space. Some take risk on medical. That can give you a little bit of a boost in terms of bookings and what have you at points in the cycle. It also can come back and bite you at some points in the cycle. And I think some of the repricing maybe that's going on in other companies perhaps maybe an indication of that. I don't know. I'm not inside their 4 walls.

But for us, I think that's strictly a pass-through expense and again, a pass-through of risk to the carriers. So it has some effect, of course, because there's an overall size of wallet that's available to companies. I would say it's -- we think about it in terms of the pricing of the rest of the PEO, if you like, the services, the administrative services, the HR support that we provide in the PEO, tax support and all these other things that we do. It's one factor in our contemplation. I would say it's not the most important factor in pricing of the rest of the services because of the pass-through nature of the medical costs.

Where it is perhaps a little more relevant is on retention. So again, in a high renewal -- high medical renewal environment, that can have some impact -- downward impact on retention. We had -- good news is we had a high renewal environment last year as well, and we also had a slight improvement in our retention. So we saw no degradation in retention last year. We don't give a guide on retention for the PEO. So I don't have a specific comment on it other than to say that on a basis year-to-date, and it's implicit in our revenue numbers for the PEO that we're satisfied with retention.

It's a watch item whenever medical inflation is high, but medical inflation is high no matter how you procure it. And I think our ability to provide Fortune 500 benefits to small and midsized companies on a fully insured model is a winning proposition and one that we have no intent in changing.

Got it. And then this pays per control has moderated this year within the PEO. The company has been increasingly relying on bookings to grow WSEs. The company has been investing in sales and marketing. I think year-to-date, you were right around growth of 15%, following 10% last year. Does this level of investment support an acceleration here in the WSE growth here? And what are those key investments being made in that PEO business?

Yes. I think -- I mean on the WSEs, again, we're guiding to a full year result of 2%. I think we had 2% in each of our 3 quarters to date. So I would say that's a fairly constant environment. I think -- on the pays per control, it's an interesting one, actually, if we just take a little sidebar on that for a moment. It has moderated a bit in the PEO. Again, it's still positive and growing. It's sort of come off a little bit in terms of the amount of contribution through the year, which is a little bit the reverse of Employer Services that's got very slightly stronger, I guess, again, very slightly, but a little bit stronger as we've moved through the quarters.

It's an interesting dynamic, and I just want to take a second on it because I was talking a minute ago about our white collar sort of gray collar emphasis in the PEO. I wouldn't extrapolate a trend on white collar employment to the softening. Where we've actually seen some of the softening has been more in some of the gray collar industries like construction, like leisure and hospitality, like trade and transportation. We've seen, again, relative, continued strength in areas like IT, professional services, financial services, health and so on within the PEO base.

So there is still growth there from a same-store basis. It's definitely a lot less than what it was a handful of years ago, which back to your question, means that -- and again, if you take my comments a minute ago, Jared, on retention in the medical renewal environment, it puts a lot of emphasis back on bookings. And hence, why we are happy to continue to invest heavily in driving bookings growth in the PEO to keep the engine moving.

And whilst we go through what we believe is a cyclical period for the PEO with respect to the employment levels and also the medical inflation costs, again, I don't know how long the cycle will last, but we don't believe it's a structural headwind to the PEO long term. We're happy to continue to invest in trying to drive the growth engine. It does have some adverse impact on the margins. But when I look at the contribution that new business brings from a margin perspective in the PEO, it's an investment worth making.

Got it. And we can't skip the topic of AI either here. ADP has rolled out ADP Assist, your AI chatbot and there's AI agents available on the ADP marketplace. How is the company approaching the monetization of AI functionality?

Yes. We have ADP Assist. We've been talking about that now for a couple of years. I think we have -- the marketplace thing is allowing some third-party agents in a very governed fashion to operate within the ADP ecosystem. And again, we protect that at great effort and interest to ourselves on behalf of our clients and their employees because of the amount of personal, sensitive data we have in our systems that belong to our clients.

So again, allowing third-party agents in through a governed process via our marketplace is how we're dealing with that so far. We also have spoken about in our last earnings call about the deployment, the imminent deployment. There's been some deployment, but I would say it's very much at the beginning stages of our own persona-based agents. So what I mean by persona-based agents is within HR, there's not a single -- it's not just a homogenous space.

There's pure HR, there's HR business partner, there's compensation, there's payroll and a raft of performance management, recruiting and all of these sort of functions within HR. So our technology organization is looking at -- or has been building, I should say, not looking at, is building and deploying some of these persona-based agents into our platforms to assist our clients, the practitioners to be more effective, more efficient in their work and ultimately deliver benefits.

So it's a multipronged approach. There's some of the functionality that's built into the product to help practitioners today to help clients -- sorry, client employees proactively or reactively address questions around their time, their payroll, why as things moved. And some of these persona-based agents is sort of the next level down and sort of the next phase we're entering into now that we believe will benefit our clients dramatically.

And as you mentioned, through the marketplace, clients who want to use other systems that we have a partnership arrangement with the ability for those agents to be deployed into our ecosystem in a governed way is a third method, if you like, of monetizing the opportunity.

And the company has pointed to still being in a net investment position when it comes to AI deployment internally. I guess how far along is the company in terms of deploying AI internally? And where have you seen the most promising results to date there?

Yes. I mean it's a good question. I think we continue to invest, and we also continue to generate results and efficiencies and reward, if you like, from that. And we spoke about that in our third quarter earnings call, we lifted our margin delivery. I think you may ask me a question, so I'll try to hold fire on the -- on interpreting my own words on the margin comment I nodded to in our last earnings call.

But certainly, we're seeing more and more rewards that potentially makes us want to invest -- continue to invest more and more to try to generate more. I think we're still in the early innings, if you like, for AI deployment. So I don't really see it as a heavy drag on margins, but I think we will continue to invest because we're seeing the results, and we're seeing it in a number of ways. But when it comes to margins, I would say the primary driver is making our service and our implementation teams more effective and more efficient.

And the beauty of that is -- it costs us less money to serve. We reduce the cost to serve. We -- in most cases, we're delivering a better client experience and more automated onboarding, for example, for clients in the down market. We're able to deliver better insights to our clients and solving problems, whether it's IRS notifications or other things that come their way in the daily life, if you like, of payroll and HR and time and things like that.

So we're able to do that. We're able to realize economic benefit for ADP through being able to price for that, while at the same time, generating more efficiency in the cost base and certainly influencing the headcount curve in the direction we feel is appropriate for our operations teams.

And do you have a sense on when -- in terms of the time line and when AI might ultimately flip from a net investment to a net benefit here?

Yes, very good question, but very difficult one to answer because, again, there's -- I think there's plenty of untapped opportunities out there that we potentially could invest in. But I would put it this way, in our medium-term guidance that we shared almost 12 months ago at Investor Day, we showed that the contribution to our margins from float is likely to diminish, if you like, or the contribution will become smaller just as our embedded rates in our portfolio catch up, if you like, to the rates that are available in the market.

So no decline expected for sure, but the contribution, if you like, to improvement will become smaller. And as a result of that, to be able to maintain and potentially even look to lift our margin trajectory, we need the outcome you're talking about there. And that's something that we're already starting to see and something that we nodded to on our last earnings call.

Got it. And then in terms of AI, in terms of more of the risk side of things, one thing we have heard from investors is that AI could potentially cannibalize your outsourced service offerings. I guess, how would you respond to this view?

Yes. I definitely don't see a high probability of it cannibalizing. I think it certainly can augment and support those offerings. The economics, if you do believe -- and it's not our thesis, but if you do believe that potentially there is some revenue pressure there, I think that could be well and truly offset by the utilization of AI in the delivery of those services.

But -- and then I know AI is a different and a new and faster accelerating technology, but we've been in these businesses for a long time, and we've been through a number of technology cycles and automation cycles. And if anything, it's just added to the value proposition of HR outsourcing to PEO, some of our managed offerings because it's not purely a cost play. There's a lot more to it than cost play. There's a quality play. There's a risk transfer play involved in these offerings. And I personally believe that AI will actually help augment that and enhance it as opposed to replace it.

Got it. Let's talk on margins here. This has been a key area of investor focus here. With the 3Q print you did detail for FY '27, while still early in the planning process, a focus on continuing that acceleration of margin expansion as you realize productivity benefits from your AI transformation. To clarify, was that comment in relation to implied expansion guided to for 4Q relative to the FY '26 guide or something else there, just to clarify that.

Yes. So no, the intent of those comments was -- so again, we lifted our margin guide quite meaningfully, I think, through this fiscal year, we started at 50 to 70 basis point. We had some pressure in the first part of the year with respect to a large by ADP's historical standards acquisition we did called Workforce Software. There was some pressure at the beginning part of the year on that.

We got past that. We had a first quarter of flat margins as a result really of that acquisition-related contribution, if you like, to the first quarter. We then had 2 quarters where we delivered 80 basis points of margin. We lifted our full year guide to 80 basis points, which I think by -- sorry, to 70 to 80 basis points, which I think if you extrapolate from a first quarter of flat and then 2 quarters of 80 basis points implies some acceleration.

The intent of my comments was to show -- or to inform investors that we see this as not coming from some sort of temporary factor or a onetime benefit that has helped us lift the margins this year and then sort of deviate back, call it, to more of the medium-term guidance range, which was 50 to 70 basis points. So I would say we're at or around maybe potentially a little above depending on where we finish the medium-term guidance range.

And the intent of the comments was to say that we see that more as the go-forward level as opposed to sort of coming back. So hopefully, that makes sense. And where are we getting that from? We're not just squeezing costs and potentially disrupting ourselves with a worsening client experience. We're getting that from some of the efficiencies I was just talking about.

Some of it also is price contribution that we're getting good value, we believe, for what we're delivering to our products through AI to our clients that's helping us maintain our price. Again, we're not really counting on much in the different -- in the way of pays per control growth or same-store employment growth. So it's really top line opportunity and productivity in -- primarily in our service and implementation operations.

Got it. And one more on margins here. As we look at the income statement, what expense line do you see the greatest opportunity for expansion over the medium term here?

Yes. Again, I think it's -- what I was talking about, most of that translates into the OpEx line. So service and implementation is in OpEx. SG&A for us is a little bit of a funny line because S is very different to G&A being sales and marketing. It's an area we continue to invest in and we have invested in for many years. It's part of the fabric at ADP, and we still see plenty of opportunity, notwithstanding our size, plenty of opportunity in this large and growing market.

So I would expect we would continue to invest in things like sales and marketing, in R&D and product and technology. G&A, I think there's efficiency opportunity, but likely that will be a little bit dwarfed by the S part of the SG&A line. So net of it all, the OpEx line is most likely where you would see that. And I think where we have been seeing that through recent times.

Makes sense. ADP has cited for paying 1 in 6 employees in the U.S. for some time now, which suggests you've maintained your market share in payroll. I guess what has prevented the company from expanding its share to, let's say, 1 in 5? And would taking share in payroll be your expectation as we look forward here in the next 5 to 10 years?

Yes. So we pay around 26 million workers. We've disclosed that for some time. Our 26 million workers in the U.S., I think it's 41 million or 42 million, around 42 million globally, so about 15 million, 16 million or so internationally. It's a big jump to go. If you think about 26 million is 1 in 6. To go 1 in 5, I think it's 32 million. So 6 million workers, that's, call it, a 20% grab in market share.

And when you consider the fact we don't really play in the public sector, which is about 25 million, I think, of the roughly 160 million workers out there. Some of it perhaps is just our absolute size and moving a metric like that, that metric is sort of meant more just to be a helpful rule of thumb for people. It's not necessarily an objective of ours to go from whatever we were 1 in 7 to 1 in 6 to 1 in 5, it's not really something we think about too much as a management team.

But gaining market share is certainly something that we spend a lot of time focusing on. And I think we feel like we have done pretty well there in certain segments of our market, particularly like in the down market in the PEO business over time. I think we have some opportunity to drive more market share, and we feel like we're now well placed in an area being the enterprise space where we have probably ceded some market share over the last decade or so, just due to where we were placed.

I think with our product Lyric and the way it's performing, it will take some time to bed in, in terms of sales cycles and implementation cycles for enterprise companies for it to bed into the numbers and the results. But we feel good about our opportunity to continue to grow share domestically and internationally, and it's certainly something we're focused on.

Great. And it feels like messaging across public company here has been no change in the competitive environment in recent years. It remains highly competitive. Investors tend to struggle with this just due to the certain private vendors like Rippling or Gusto getting to notable private scale and still growing at rapid rates here, while you've seen some deceleration in organic ex float growth rates across the public comps. What do you attribute this to? Is this more so just you're competing against better public competitors or certain private competitors? I guess what drives that consistency there while you've seen such a notable growth and emergence of certain private vendors?

Yes. I think the competitive environment, what's the best way to put it? I would say it's not that it doesn't change. Of course, there is changes. Some companies come in, some companies go out, companies are either maybe moving their focus from their core segment to try to identify growth opportunities in new segments. So it definitely moves. I think what we would say is that is it meaningfully more competitive now than what it was 2, 5, 10 years ago, I would say not necessarily.

What I would definitely say is we don't see any unnatural behavior or people doing unnatural things just to try to drive share. I think the net of it all is we believe at least that it's a growing market, so there is room for opportunity for all. I think some of the companies, again, some people may be more familiar with the details of some of the private companies than others, but certainly, there's not as much public disclosure.

So hard for me to comment on those companies. But there is still -- and you mentioned Rippling, for example, more of a mid-market or the lower end of the mid-market competitor for us. We see them a little bit, not a huge amount, but we do see them around formidable company by the looks of things. There is still opportunity, I think, for all of the named companies, whether they're public or private, like the likes of Rippling to grow. There is still. And I know it raises a few eyebrows from time to time as to how can this still be the case.

But the reality is there is still a meaningful size opportunity, putting the growth in the market opportunity aside in these regional local players, whether they're CPAs or mom and pop shops, those sort of things. They still -- they may not have as much share as they did 5 years ago, but they still have enough meaningful share. I think there is opportunity to grow.

And our focus is really not so much on what all these other companies are doing. We certainly pay attention to the competitive landscape. But our real focus is on improving our client experience, improving our retention. I think we've done that really successfully, being out there with the best products in the market and winning business, and that will hopefully take care of itself in terms of winning share.

Makes sense. And we've also gotten the question before on the risk to float revenue from the adoption of faster and lower cost instant payment methods such as stablecoins. Is this a legitimate risk over time as we think about your float revenue?

I would say we don't see any of that now. The demand -- we do offer the ability for client employees to receive some or all of their net pay as they choose in a digital currency, a stablecoin, for example. Again, that's a conversion done sort of what we would call post-payroll, if you're getting into the payroll sort of geeky payroll process sort of towards the tail end. But again, they're somewhat seamless to the client employee that would receive stablecoin in their Coinbase account or whatever exchange they work with.

But not really. I mean faster payments, real-time payments have been around for close to a decade. There are some advantages of those. We use some of those in our money movement operation. There are also some disadvantages, particularly to small, midsized businesses around the finality of payments, the cost of the transactions. No tax authority to my knowledge in this country or any country that we operate in and move money in will accept anything other than fiat currency at the moment.

So nothing on the horizon that's obvious. And our float balances, not just the revenue from the rate side of it, but the balances coming from both wage growth and volume growth in the employee base to me shows that the value proposition is as strong or stronger than it's ever been as opposed to sort of being at risk.

Understood. And the company is guiding Employer Services retention to decline right around 10 basis points at the midpoint of the range this year. Is it just an increase in out-of-business losses in the down market driving this expected decline?

No, I would say it's not that. It's nothing specifically. It's -- we've said sort of through our first 3 quarters, then we raised our guide to flat to 20 basis points, hence, your midpoint comment in our last earnings call. It's just -- 10 basis points for us is a relatively small number in the context of the size of our Employer Services base and churn. So we just -- it's hard to get very precise down to these levels in terms of what may happen.

But it's less about macro environment or structural things. It could -- we just see from time to time, and we're perhaps a little bit prudent on our retention guidance as we've shown over the last few years. But things can happen. Clients can downgrade from a service level to a lower service level that impacts retention. Of course, we have a revenue retention rate. A company can be acquired by another company and therefore, need to move their provider to the parent company.

So there's just things that can happen that might move the needle around 10 or 20 basis points, but there's nothing structural, and I certainly would not attribute our guide, whether -- at whatever point it is, flat, 20 basis points or anywhere in between down to things like out-of-business rates or macro or the war or oil prices or anything like that. To me, it's more just -- we're trying to be prudent and cautious and not get ahead of ourselves on where retention will land. But it's been a very strong and stable metric for us for a number of years, and I think this year will be no different.

Great. Let's wrap it here. Thank you for joining us today.

Excellent. Thank you, Jared. Thank you, everyone.

All right. Terrific. Let's get going. Thanks, everybody, for joining. My name is Tien-Tsin Huang. I follow the payments processors and IT services names at JPMorgan. And I was just telling Maria here that covering ADP all this time, I feel like it's an obligatory name to talk about tech and for me, at least for ADP. So thanks for being here with us, Maria.

Thank you for having me.

No, of course, it does mean a lot to me seriously. So Maria Black, President and CEO of ADP. We have a lot to talk about. A lot of the questions are going to be familiar to you, but I did want to hit all the big topics that are out there, if that's okay.

Sure.

But let's just kick it off the usual question around the macro state of the macro you see so much in terms of working with small business, enterprise, of course, powering all these employees. What are you seeing? Any changes? Any -- where are you encouraged where might you be a little bit more careful?

Yes. Fair enough. As many of you know, we do have a front row seat to the macro environment in terms of what's happening with respect to labor, wages, things of that nature. But that said, we actually are not in the predictive modeling. We're simply reporting on really what it is that we see inside of our business, but also the research that we do with the National Employment Report in conjunction with the Stanford Digital Economy Lab, et cetera. So a couple of things that we see. I think we see a generally stable environment. We've been talking quite a bit about that this year. Specifically as it relates to our results, we're guiding to a 1%, roughly 1% pays per control growth. So for those of you that aren't familiar with pays per control, it's the measure of how many pays are per company at ADP. So think of it almost as a same-store growth type of measure. So we see that relatively stable and somewhat flat. We were pleased to see an uptick in the second quarter and third quarter, which allowed us to ultimately raise that guide back up to that roughly 1%.

But in the context of prior years, I think it's somewhat muted still in terms of the overall stability of the environment. We do also do the national employment report this morning, we also reported the weekly numbers. So the weekly number is 42,250. So as of last fall, we started the National Employment Report Pulse or what we lovingly refer to as the NERP and the NERP actually showed this week a little bit of a strength, if you will. So there's some pockets of strength. The April report was 109,000. So I think the general semantics there are relatively stable, still somewhat a low higher, low fire type of environment. I think one of the questions I get all the time, as you look at the monthly data, in addition to what we do weekly every month as we report the monthly number, we double-click by industry, by segment, et cetera. So one of the questions I get all the time is what's happening with respect to IT sector. So the IT sector is still actually adding jobs.

If you were to look at the last quarter, it was 11,000 in February. From a March perspective, it was 16,000 and then 4,000 I think, in April, something along those lines. But ultimately, it's still adding. So I think there are some sectors that are growing, some sectors that aren't and have a little bit more pressure from a growth perspective. We see some of that in the trade, hospitality, things of that nature. But all that to say, I think our lens is that it's a relatively muted environment. It's relatively stable. There's certainly a lot happening in the world of work that is the conversation of the day and we have that front row seat. We were pleased to see the results on the bookings side that kind of speak to how we think about the demand as it relates to kind of what's happening in the world of employment. I'm sure we'll get to that.

Good. No, thanks for sharing the tippet on IT. There hope after all. It's really, really important. So yes, we'll dig in on a lot of that, Maria. But I wanted to just kick it off, right? I wrote this down. You framed this as a defining moment for HCM. You called that on the call, so that caught my attention. Can you elaborate on what you mean by this and how you're positioning ADP to win that moment?

Yes, absolutely. It is a defining moment for human capital management. I just mentioned it, the topic of the day is work and what is happening to work, what's happening to labor, what's happening to jobs, tasks within jobs. Getting this moment right for our industry is an imperative. And we are built for this as it relates to kind of ADP, not just what we do, the lens that we have, the work that we do, the data and all the structural advantages that allow us to really position ourselves in this defining moment for HCM. So why is it a defining moment? While AI is absolutely getting infused into the world and certainly into the world of work. And as jobs continue to shift, perhaps converge as tasks are starting to change within the scope of a given job, everything is becoming more complex, not less complex. And the need, by the way, to still manage human labor is greater than it's ever been. And the complexity of that is greater than it's ever been. And again, that's kind of what ADP is built for. We are that workforce infrastructure.

So that's a big piece of it. So said differently, as AI gets infused into work, we don't see the need to manage people and payroll and the very functions of HCM to go away, we actually see them becoming even more important. And we feel that every day. You can feel it, by the way, even in the regulations. So if you think about the complexity of processing payroll, you do have to get it right, not just good enough, not 90%, but actually 100% accurate 100% of the time. And that involves not just the efficiency of a calculation, although that is arguably pretty complex, too, because it has all sorts of regulations and an ecosystem, too, as it oftentimes are even in conflict with one another. But as AI is emerging, all of that complexity and new regulations and new interest by whether it's data privacy, data lodgment or it's the regulators that sometimes sit at odds with each other at the federal and state level, just even in the EU this summer, the EU Pay Transparency Act, is coming into play. So all of this is the complication really within payroll and getting it right is an imperative.

It's not a nice to have, and there's no really room for creative outflow. I think that brings me kind of to the last piece, which is what I often refer to as the final mile of getting payroll done, which is the connection to all of these regulators, carriers, brokers, banking institutions, whether in terms of who ADP is and ultimately how we show up in that moment, all of those connections across literally tens of thousands of entities that we communicate with to get that payroll 100% accurate, not just anyone can actually plug into a bank or move money. This is all the stuff that we know in payments land, and that's who we are. And so for -- in terms of HCM and getting it right, I would say ADP is well positioned within that, but this is a moment that is more complex, not less complex, the need to manage people doesn't go away. And candidly, where there's complexity, ADP thrives and we're really built for this moment.

Yes. And there's no tolerance for errors to the client and has to be fully compliant, right?

It has to be fully compliant.

You do. And I think thinking about the quarter, Maria, and I was thinking about rereading it, preparing for this discussion and thinking about the KPIs that came through, I mean, so much of it really refuted some of the AI concerns because pricing was net positive, right? Retention was net positive. You talked about CSAT scores being up as well, which is sort of counter to all the fear that might be out there. That's natural. But what do you think is structurally different now for retention and pricing to be better?

Yes. So again, if you kind of zoom out for a minute and again, think about everything we just discussed with respect to HCM and this defining moment, and everything becoming more complex, there's a tremendous amount of value and opportunity that's created. We believe in value-based pricing, we always have. And we believe in all the investments that we're making are going to create things like productivity, things like efficiency, and that is creating inherent value for our clients. And that is the commitment that we have. By the way, that is our business model. We see that show up in bookings. We see that show up in client satisfaction scores. We see that show up in retention, and we see that show up in kind of the structural return, if you will, in the execution that we're on.

And we were really pleased in the second quarter -- or sorry, third quarter to have an opportunity to share some of the things that we're seeing in terms of the KPIs, whether that's the results and the momentum that we feel in the bookings where it's the results and retention or even the guidance on the margin side as we continue to push efficiency into our business, and we're sharing that with the clients. And our clients are feeling that value equation. And so it does feel structural. What I will also say is leading up until this moment, we also made tremendous investments into our products, into our services. And now we're doing all of that again with AI, and it's going to yield those same returns. And so it's early days as it relates to really being able to discern the AI efficiencies that we're gaining, but we were pleased to share in some of that in the last call with respect to the digital transformation in our down market. But I think it's just the beginning of that conversation and the results that will prove themselves to be structural for us.

Sure, sure. Because I've always thought, Maria, that from a pricing standpoint that that's always been a hallmark for ADP as long as I followed it. Because of the complexity and the investments, we're able to pass through some of that cost back to the user. But the natural question from some investors now is that will that change with AI? Will that lower the barriers of entry to competitors to offer some of these ancillary services that you do price for? Maybe more will be done in-house. What's your response to that?

Yes. It's a great question. And the question around price is one that we think deeply about. I think the way we've always approached it is really along the lines of our design principles, which is about putting the client at the center. And so staying close to what the clients at that center would have as an expectation for price. Again, we believe in transparent value-based pricing. We always have. I spent a lot of time in the field with our clients just this past quarter, we had our large enterprise meeting just in March, February before that, we had our big international meeting. We just completed our mid-market meeting. And what I hear from the clients is continue to bring value. And if you need to take price for that value, sign us up all day long. And so sharing in that efficiency with our clients, that's exactly what we are on that journey.

We were pleased and we're guiding to 130 basis points of price this year, kind of up a bit from 100. That's what you're referring to with the KPIs. And it's because we're bringing value. And so from our lens, changing our pricing model for something that hasn't happened or doesn't exist yet doesn't seem to make a whole lot of sense to confuse the market, confuse our clients. But in the end, to us, it's really about continuing to drive the value and the commitment of what it is that we do into our clients and ultimately sharing in that journey with them. That's kind of where we fit in. That's how we think about it. That doesn't mean we haven't studied all of these things, but we find them more confusing to the market today than necessarily helpful.

In terms of this comment of others being able to do the things that we do, we are doing all of those things. We're infusing AI into very fabric of our products, our services, how we think about our business, how we deliver these values to ultimately take price. And so where there's efficiency from AI, we're already embarked upon that journey, and we will feel that as well. And to me, it's really not about the speed and how fast and the efficient and the productivity. In terms of what sets us apart is really, again, that final mile that you can't really do with AI and the domain expertise to ultimately create all of these efficiency tools, you can't do without our data set and the structural advantages that we have.

Yes. I mean, the proof is in the fact that the pricing is net up and retention is up, right?

That's right.

That's the best combo for ADP. Just staying with one last point here on pricing and thinking about AI and some of the tools that you're starting to externalize. Do you -- should we expect that ADP will monetize those distinctly? Or is that going to be part of your normal pricing cadence?

The answer is both. I think the first part I would say is everything I just said around transparent value-based pricing. We will continue to monetize it through our natural recurring revenue model. So that's about more bookings, clients staying longer, happier clients leads to referrals. It's a very happy ecosystem, if you will. That is absolutely a piece of it. That said, there are opportunities. We talk a lot about AI. A lot of the questions tend to be about disruption and risk and all these other things. AI is a tremendous opportunity for us from a growth perspective. And so as things do become more efficient and automated, there are opportunities for things that we do potentially specifically inside of one business today that we can extend the reach across multiple businesses.

So I think there's unlock that can happen from a monetization. How we price for that, I think long term will be somewhat determined. But I think there are new revenue lines that could come in. And by the way, we've seen some of this. We've seen some of this work that we've done with our big data set as we've taken that data set and created tools for our clients around benchmarking and analytics. I think, again, that journey will continue to evolve and drive growth. We also monetize the data set with taking friction out of, call it, mundane processes such as employment verification. And so I think we're just scratching the surface on how to ultimately monetize data, which data is really the backbone of the AI. And so I think there's as much growth opportunity as there is efficiency and productivity opportunity.

Okay. Good. No, I appreciate that answer. So let's talk about another important metric I know that you care a lot about, which is new sales. I think most recent quarter, you framed it as solid and stuck with the full year guide, which still has a pretty wide range. So I get this question a lot, so I'll ask you. Just what would drive you to land on the lower end versus the higher end of that? How much is macro versus some of the specific forces that you're pushing to get to that?

Sure. So it is that season. We are in the final few weeks here, final stretch of the fourth quarter. We were pleased with the bookings from a year-to-date perspective. We had good momentum, solid. I think using your word in Q1, Q2, we built on that momentum in Q3, and we were pleased we were pleased because it was broad-based. I think we had a couple of shout-outs in the third quarter to some places that I think are back to structural advantages that I really point to just how broad the results of ADP are, but also the advantaged pieces of our business. One was international. It was great to see. It's a lumpy type of market for us.

It was really great to see the progress in the third quarter in international, although it always kind of remains a watch area for us for all the obvious reasons. In addition to that, Compliance Solutions was a callout for us. Compliance Solutions is that business that performs that final mile. So again, a business that's performing very well in the context of what's happening right now. We also talked about retirement services and insurance services. These are the beyond payroll offers in our down market, and those are having really fantastic results. But it was broad-based. The employer services, HR outsourcing did well in the third quarter. So what we're looking at is stepping into this fourth quarter with good momentum, solid pipeline.

So pipelines are really about the mid-market and upmarket, down market, we're measuring activity volumes, all lead volumes, things of that nature. And all of that feels good. I think we feel good about our sellers and their ecosystem. We've made tremendous investments into our sales force, both in headcount, tools and technology. Just a year ago, we talked a lot at the Investor Day about what we call the Zone, which is a proprietary platform that we built inside of ADP to ingest AI into the sales motion into that go-to-market motion, the easiest way to think about that is serving up the right lead to the right seller at the right time with the right offer to drive a better outcome from a sales productivity, a lot of knowledge, learning, made investments into technology, made investments into the ecosystem of partners that help distribute our offers, that's bank channels, broker channels, SIs, CPAs, things of that nature.

So again, when I think about everything that we've lined up to step into this fourth quarter, why the wide range, I think the first thing I would say is I'm not sure how wide it is. 1 percentage point is actually roughly $21 million. So if you imagine 8,500 sellers with the backdrop I just described at the ready to go get it done this fourth quarter, that's exactly what they're doing. That's how we feel about it. The difference literally could come down to less than a handful of deals, right, in terms of the difference between 4, 5, 6 or 7. So we kept the range wide. It felt prudent to do that given everything that is happening in the world and just kind of the sensitivity of that 1%. But rest assured, everybody is at the ready and out there, myself included.

No, good. No, I'm sure that's the case. So fingers crossed, so no surprises. But I had to ask, and I think I asked it on the main earnings call, too, Maria, I'll ask it here again. Just the competitive intensity that's out there and the balance of trade sort of phrasing we've used in the past, how does that feel? And I'm asking because you have some private players that are out there talking about big growth rates and some success they've had in growing ARR. And of course, we track all of your peers as well, some of which aren't in the public limelight anymore. Have you observed any change? What are you paying more attention to? What should we be paying more attention to competitively?

Yes, it's a great question. I think I answered it similarly on the call that day, which is we like competition. Competition is fuel for innovation. It keeps us nimble. It keeps us on our toes. It keeps us learning from each other. It is an incredibly competitive space. The one thing that's very unique to ADP is that we are the one competitor that spans all of the segments, the full spectrum from the very small company on Main Street to the very largest employer with 1 million employees on a worldwide scale. So we do have a lens across all of the competitive set. And it is highly competitive. Is it more or less pressure today than it was a year ago? I think it's -- perhaps there are certain competitors that are operating slightly different from how they were operating a year ago. Some of that is because some have gone private, some have gone public, some have merged, rebranded, whatever these things are, but it is a highly competitive.

I don't know that I see anything really unusual there. This time of year, many operate kind of on our sequence from closing out the fiscal year or coming close to it here in this quarter. So there's always a lot of promos and incentives. From a balance of trade, we do well. We continue -- just like you, we're looking at every single one of them. There's always an opportunity to get better. And there are several competitors that we are deeply studying how they go to market, how they think about certain things, how we solve for it. Sometimes we solve something through a marketplace partnership and eventually realize, gosh, we should have that as core functionality. So I think we all learn from each other. It keeps us all innovative, and it keeps the sport fun. I think it is how I said it on the earnings call. It's a highly competitive space, and we like to win.

Lyric, it is something that's new that I would put in the category of TAM expanding for you, but going after some newer spaces that you previously were in. So what's the progress report on Lyric?

The progress report on Lyric is fantastic. I'm so glad you mentioned it. It's one of my favorite topics. We're really pleased with what we're seeing with respect to the results in terms of the new sales to date and moreover, the pipelines and also the conversation in the market. The one thing that's unique about Lyric outside of the fact that it's the most modern platform for enterprise clients that exist today, and it's most modern because it's the newest, but it's also how it's architected. And this concept of being able to have a product for a CHRO or really for a company that's architected at the employee level that allows for the worker to actually move between teams, what we call dynamic teams -- so I said workers able to have multiple reporting managers, multiple reporting managers actually contribute to their performance management, things of that nature.

That's becoming even more common and more imperative with the advent of AI. So as jobs -- and we study the world of work very deeply in conjunction with the Stanford Digital Economy Lab. And our belief is that jobs are not being disrupted at the end-to-end level. They're actually being disrupted at the task level. So if the world of work in the future is a collection of tasks as opposed to a collection of jobs, a product like Lyric is meeting that moment in the most modern way because it allows a task to be assigned to the workers that has that skill and utility. And that is what the new world looks like, and that's what leaders are turning to. You hear this directly from our clients. I mentioned all the events that I've been to. That's not to show up all the places I've traveled, but rather the conversations we're having with our clients.

They're leaning on ADP to be that trusted source to help them navigate this defining moment for HCM. But specifically, as it relates to the enterprise clients and the MNC clients, we're the only offer out there. So you take Lyric, which is that TAM expander into the upmarket enterprise HR space for ADP, you marry it to global payroll, which we're uniquely positioned to do across 140 countries. You add in global time and the product and acquisition that we did almost 2 years ago called Workforce Software and then global service. We're the only ones who have that. It for sure has changed the conversation with our clients. They're leaning on us to navigate this time with the most modern platform in that space, which is Lyric at the foundation.

Good. Good. No, you speak with a lot of excitement around it. So I'm glad I asked. Look, I think the more progress you show on that, I do think there's a lot of focus on that and interest in it. So thanks for going through that. Maybe let's pivot a little bit on the -- to the product side and think about the road map there and what you're excited about. I know we get questions on ADP Assist. So where does that fit on the road map? What else would you highlight above and below that?

Sure. So I'll start by just reiterating what I said, which is we spent the last decade or 2 investing tremendously into having modern platforms across each one of our segments. Really proud of the work we've done. The results that we're seeing are a byproduct of those investments, whether it's the client satisfaction, the retention, the bookings, things of that nature. And so enter ADP Assist, which is the overarching framework for our ADP AI offers inside of our platforms. What I would suggest to you is that we're just getting started, but we're pretty excited about what we see. And so we have ADP Assist deployed across our platforms in each one of the HCM domain phylums, if you will. So if you think about the domain expertise that we have in HCM across payroll, time, benefits, HR, tax, again, I could go on and on, but each one of these really garners this ability for us to infuse AI, take our data, our structured advantage data of doing this for 77 years and infuse AI into the very fabric of our products and our services.

And what we were pleased to share in the third quarter were some specific stats around how we're actually changing the flow of work as it relates to how payroll gets processed. So if you take, as an example, ADP Assist for payroll, this ability to reconfigure how work actually happens or how the function of payroll flows and shaving off for those that are using it 30 minutes per payroll cycle. These are -- I know this is a financial conference, but if this was a payroll conference, like the crowd would go wild right now with excitement because these are meaningful impactful ways that we are changing the workflows, and we're making it easier to do work.

And similarly, we have an ADP Assist search capability that's meaningfully changing how you can actually get to the information, the level of speed that you're able to actually process payroll, get the information you need to do changes in that workflow. So I could go on and on. What I would tell you is we are really excited about what we see. Some of the things that I see across ADP Assist, I've been in this business. We're coming up on 30 years. And I have to tell you that these were business plans and dreams that I had many years ago, but it is changing the flow of work for our clients. It's making things more efficient, and we're just getting started.

So what are some of the proof points that you would think that, hey, we'll show you this over the next 2 to 3 quarters to really show that it's being adopted. Is there anything that we can track or that you're.

Yes. I mean I think some of the things we cited in the third quarter, we're going to continue to try to bring these proof points. One of the ones that stood out to us was this efficiency, specifically in the down market as it relates to the digital transformation that we've been running in the implementation. I think I actually have probably talked about that on stage the last few years that I've been here. And I have to tell you, there was a time that I thought that it was 30% that we could do digital onboarding using the likes of OCR and machine learning and other types of digital transformation tools.

That kind of with the early phases of generative AI, you felt that kind of moved to 60% to 70%. I will tell you today, we have line of sight of being able to almost entirely automate that. We cited some of those results in the third quarter in terms of the efficiency gain in that business. And those are the type of proof points I would look toward in terms of whether it's raising up our margin profile or specific callouts by business or time, right? So it's always about kind of the chunks of this stuff leading to big results, and that's what happens when you have well over 1 million clients.

Okay. Yes. there's obviously a lot of data and touch points there. So now we're going to keep asking about it. So let's -- we've got 7 minutes left. There's some other subjects we should definitely hit. PEO is one, of course, you know it very, very well, Maria. So we've been saying it's still great solid growth, but not industry-leading. You are the biggest player out there. So everyone is paying attention to what you're seeing there. And Brandon does a great job now covering the PEO group in our space. But is there something you're doing to stimulate growth, assuming there is some secular demand there given the higher cost of health care? And it feels like it should resonate really well in this environment. Would you agree with that?

It does resonate very, very well in this environment. There is secular growth. The demand is there. Value proposition is stronger than it's ever been. If you dial back to the entire conversation that we've had today about it only getting more complex as AI is being infused into the very nature of work and how work gets done. If you're a small to medium-sized company, this is the best way possible to help you navigate all of that complexity and inclusive of all of the regulatory requirements in this PEO model where you share in that responsibility in that co-employment piece. That's a big piece. And certainly, with the rising health care costs, the demand for alternate ways to satisfy that need to compete for talent such as through a PEO. So the secular demand is there. We were pleased with our results as it relates to bookings within the PEO.

In terms of the overall growth rates versus others, I think the reminder I always give is we're not all structured the same. We're very specific in terms of who we target for a PEO offer within ADP. So as you know, about 50% of our new clients in the PEO come from the existing ADP base. Going back to kind of the tools that we have for our sellers of that PEO offer to the right client at the right time is to say that not every single client that sits inside of ADP, although a lot more than we have addressed today, there's tremendous TAM even inside our own house or TAM expansion inside our own house but not everyone is a fit for the PEO. It kind of takes that perfect profile. We tend to skew somewhat white collar kind of into the somewhat blue collar, but we don't necessarily address all the same spaces that some of the other PEOs. We could if we wanted to.

The answer is we don't. We believe that the model that we have with a fully insured program on the health side and how we think about workers' compensation risk is what's allowed us to maintain the durability of the PEO that we run over all these decades that we've run it. I think for us, it's continued focus on the bookings, which is exactly what we have. We have all the incentives aligned, the demand is there. And at some level, the PEO has just have that pressure of an even more muted pace per control growth in those industries that we address. And so some of it is patience as we wait for that. We're squarely focused on continuing to accelerate bookings and of course, keeping as many of the clients as possible through what is arguably a very strange time and pressurized time as it relates to health care.

Yes. Okay. That's good. So obviously a focus, but there's so much going on in small business. Maybe staying with small business. Last year, we talked about the RUN Clover partnership, and we demoed it in your offices and then there's been a lot of -- there's been some management change, of course, at Fiserv since. Has your enthusiasm around RUN Clover changed at all? What's the latest with the partnership?

My -- the only thing that's changed is my enthusiasm only continues to grow. We're really pleased with the partnership. We've accomplished a lot since we initially came together and started talking about the partnership, inclusive of the demos. But the demos are real now. And so back in October, we put Clover into the RUN platform. In December, we put CashFlow Central -- did I say that the right way? We put RUN into the Clover platform, and we put CashFlow Central into the ADP platform in December. So we're broadly now deployed against each other is what they call the back book. We have the sales motion aligned. The teams are executing incredibly well together, but it's still early days as it relates to a meaningful impact across the volume that either Fiserv has or we have.

But do we believe that this ecosystem approach to solving for that entrepreneur, for that small business as they're navigating if we have the ability to serve up more things for them to do, whether they're inside of ADP Payroll or the converse inside of the Clover platform, that can only benefit us. The embedded strategy in general is part and parcel of a broader strategy across ADP. So we believe in embedded inside ecosystems, not just the one that is about Fiserv, but certainly other systems, whether be it banks or other places that we have the ability to serve up to make it easier for that small business. So excited for sure and excited because the opportunity is still in front of us.

Okay. Good. I will ask Mike about it this afternoon. Glad to hear it. On the -- maybe a couple of minutes left. Let's do capital allocation, I suppose. So thinking -- last quarter, you did step up your buyback a little bit, Maria. So we did notice that. Should we consider that a signal of more interest in buying back shares as opposed to doing M&A?

Yes. I think we stepped it up, and we were excited to leverage that piece of our shareholder return, and we stepped it up through the end of '26 is kind of what we referenced as well as kind of nodding to how we think about it heading into '27. Our broader capital allocation strategy is sharing with our shareholders. That's one way to do it is in share buybacks. The other is the dividend. We're very, very proud of being dividend king back in November. We announced the 51st year of dividend. And so again, that's another big piece in terms of the commitment we have to shareholder return. We're always thinking about acquisitions where always thinking about what makes sense for us within the strategic direction of HCM and adjacencies around it.

We do acquisitions in terms of tuck-ins. I think the most recent one we did was in Mexico. We acquired a company called PEI. So we're always looking at whether it's tuck-ins or it's the big acquisition of Workforce Software structurally, that was the largest acquisition we ever did almost 2 years ago at this point of $1.2 billion. And again, I already mentioned just how well that fit into our strategy and how that's changing the conversation in that enterprise and MNC space. So we're always looking. We're always opportunistic as well as thinking about how it fits in our strategy. And in conjunction with that, we're also very committed to our shareholders and making sure that we're delivering on those commitments through things like share buybacks as well as dividend.

Yes. No, it is a staple for ADP. So 30 seconds left, thinking about -- and we talked about a lot of things, Maria. So thank you again for the for his time. And I know the company has been through a lot of different tech cycles, macro cycles. There's always a question of certainty versus uncertainty. Given all of that, where are you more confident in terms of sort of the bets that you're making as we go into the next 12 months?

We are very confident. I think the one thing we haven't talked about today, although I think it's implicit and inherent in some of the commentary I've made is this concept of trust. So we've been doing this for 77 years. We have the data set. The data set is what's infusing our product and innovation cycle, but clients are leaning on ADP to help chauffeur them through this strange time as undoubtedly, the world of work is continuing. I call it a defining moment. Human capital management is having a defining moment, and they trust ADP just like they've trusted ADP through every innovation cycle and technology cycle. And by the way, economic cycle to be the ones to help them navigate.

Yes. Perfect. Can't cheat trust. So that's the most important thing. Maria, thank you for the time.

Thank you.

I appreciate you being here.

Thank you.

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 Third Quarter Fiscal 2026 Earnings Call.

I would like to inform you that this conference is being recorded. [Operator Instructions].

I will now turn the conference over to Matt Keating, Vice President, Investor Relations. Please go ahead.

Thank you, Michelle, and welcome everyone to ADP's Third 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 another strong quarter of results with revenue growth, margin expansion and EPS growth all coming in ahead of our expectations and reflecting the significant progress we are making across our strategic priorities at a pivotal time for our industry.

Before we get into the details of our performance, I want to share a few thoughts on why this is a defining moment for human capital management and why I am so excited to be leading ADP in the AI era. HCM is about helping companies manage the workforce infrastructure that makes business possible, whether you're a Fortune 500 company or a small local business, that has always been our driving mission and it has never been more critical than it is today.

As AI adoption continues, businesses will only face greater workforce complexity. AI is redefining the very nature of work and how we collaborate while increasing regulatory interest around privacy and data protection. And fortunately, that's exactly where ADP thrives. We execute with precision when it matters most. In terms of rapid chain and disruption, businesses need the compliance, accuracy and trust that ADP delivers at sale. Through economic cycles, shifting labor trends and waves of technological transformation, we have confidently met every moment by investing in R&D, evolving [indiscernible] our clients and raising the bar for what HCM can deliver. ADP was the first in HCM to deliver automation, move to the cloud, provide a mobile app and create an online marketplace, we believe it's our job to lead the industry in innovation. And now we're doing it again with AI. For us, success means leading the way in a trusted service-driven and AI-powered HCM and setting the industry standard for accuracy, compliance and partnership around the world.

Our performance this quarter shows how we're executing on that. Before I discuss our strategic progress, I'd like to review some key highlights from our results. We delivered solid Employer Services new business bookings growth in the third quarter. Results were particularly strong in international and compliance solutions. Our insurance and retirement services offerings also continue to contribute to growth in our small business portfolio. Both our employer services retention rate and our overall client satisfaction levels reached new record highs for a third quarter.

This strong performance is the result of continued progress across our 3 strategic business priorities. I'll start with what we are doing to lead with best-in-class HCM technology. AI makes HCM more important, and we believe it unlocks tremendous value and opportunity for our industry that plays out in 2 ways. First, while AI excels at prediction and efficiency, it can't execute critical high stakes HCM functions with a level of accuracy and consistency required. Because at the end of the day, payroll isn't a software function, a commitment to the people who showed up and did the work and there is no room for error.

Second, AI has added new layers of complexity for our clients as they manage their payroll, workforce management and regulatory compliance. These functions are rapidly evolving. And now more than ever, [indiscernible] will need a trusted HCM partner who can decode the puzzle and reliably deliver its critical services. I also want to be direct about something analysts and investors are rightly focused on. AI is changing both work and the workforce. And with our business grounded in all aspects of payroll and beyond, we are working on answers every single day.

Our research with the Stanford Digital Economy lab shows that AI is reshaping work at the task level. While this could lead to job displacement in certain task areas, we expect other new job categories to be created in this tech confirmation. What we know for navigating through economic cycles and labor market shifts and the data we've gained along the way is that even as workforces change, the work of managing them, paying them accurately and keeping compliant doesn't go away.

AI is shifting how work gets done, but that doesn't eliminate the need to manage it and managing a workforce through disruption [indiscernible] HCM more complex. We are not immune to shifting employment trends, but we are built for the world they represent. What differentiates ADP's approach is that our AI is built in the very core of how we orchestrate, govern and execute HR and pay processes, grounded in regulatory logic, operational data and decades of expertise. This goes far beyond chatbots or surface layer automation that can enhance the user experience. It's about delivering real-world outcomes where accuracy and auditability are nonnegotiable.

For example, in January, we launched ADP Assist agents that apply advanced intelligence to real workforce challenges for us payroll and HR. These persona-based agents think, plan and act with you an oversight, they are designed to handle routine tasks so people can focus on high-value strategic work that requires judgment expertise, creativity and connection. And since that launch, we've already seen meaningful results. Our ADP assist payroll agents have saved an average of 30 minutes per payroll. Our ADP assist tax registration agents have helped businesses maintain compliance and avoid penalties and interest on late tax filings. Our Smart Actions search has reduced clicks and time spent by around 80% for common HR actions. And those are just a few examples. We are continuing to accelerate this work, roll out new ADP assist agents and look for more opportunities to make work easier.

ADP Lyric HCM is also saving time and effort for our clients. One senior HR leader at a supply chain firm shared that the AI tools within Lyric have significantly reduced the number of steps in the recruiting process from 23 down to just 8 by providing advanced candidate in size. Another client, a global holding company used [ Lyric ] to replace more than a dozen disparate systems, which enabled a 71% leaner payroll operations model and that's just the beginning. In March, we further expanded our GenTech AI ecosystem through the ADP Marketplace, our industry-leading open platform where clients connect to ADP solutions with third-party applications across the HR and workforce technology landscape.

We launched a dedicated space within marketplace for carefully selected AI agent from our partner companies that give HR teams intelligent support across the employee life cycle and all agents are aligned with ADP's principles on safe and responsible AI. Our approach is also earning external recognition. ADP was ranked #1 in HR on Fast Company's most innovative companies list, and run powered by ADP held its position as a top-ranked small business product by G2 for the second consecutive year.

I want to congratulate our entire team on these well-deserved achievements. Our second strategic priority is to provide clients with unmatched expertise and outsourcing solutions. I'll speak to 3 structural advantages that together position ADP to deliver on this priority and lead the HCM industry through its AI transformation. The first advantage is our data AI is only as good as the data it's built on, and ADP has the industry's strongest workhorse data foundation built over nearly 77 years.

We pay 1 in 6 workers in the U.S. and moved $3.3 trillion in the U.S. in fiscal '25. We capture payroll, HR and compliance on for more than 1.1 million clients and 42 million workers globally across roles, industries and geographies, giving us incredible insights into the workforce and its emerging trends.

This advantage will continue to compound for our data and AI capabilities over time and will further widen the gap between ADP and our competitors. The second advantage is our domain expertise. Every ADP assist agent is grounded in our unmatched institutional knowledge from decades of hands-on experience with companies of all sizes. Our deep understanding of HR processes, workflows, exceptions and regulatory nuances is built into the very architecture of our products, services and systems. Our service model delivers human expertise and guidance alongside high-impact technology, pairing AI-driven efficiency with expert judgment and automation with accountability.

And as AI drives regulatory change and fragmentation, we have a true structural advantage. Let's consider the current landscape. So far this year, more than 200 HR-related compliance laws have been enacted in the U.S., including several governing the use of AI. This June, the EU transparency directive will take effect and employers continue to face increasingly complex and sometimes conflicting requirements across local, state and federal jurisdictions on issues ranging from pay transparency to lead policies. But as I mentioned before, this is exactly where we thrive. Since AI entered the mainstream, ADP has operationalized an accelerating wave of changes. And when the regulatory environment accelerates as it is now, our clients will coalesce around the partner they trust to get it right, a fact that has shown up in our consistently strong retention.

This has earned expertise the kind that comes from pioneering an industry and leading the way through disruption. We are also focused on using AI to sharpen our expertise. We have continued to scale the deployment of additional [indiscernible] AI capabilities across service operations through the zone, our proprietary end-to-end solution that transforms our client-facing teams engage, serve and support clients across the full life cycle. As of March, 20% of the total service population was on the own platform, and we expect to reach over 40% by the end of fiscal '26.

Several high-volume service teams, including SBS and Wisely are operating at full utilization, which means GenAI-enabled workflows are becoming embedded in our standard service operations and helping our teams create value through a more seamless experience for our clients. The third advantage is the trust in our brand, Clients have relied on ADP for the most essential HCM processes for decades because we consistently deliver through change and complexity. In the age of AI, trust is more important than ever, and we are deepening trust every day through our commitment to ethical and responsible AI development.

Finally, we remain focused on our third strategic priority, benefiting our clients with our global scale. ADP supports clients across [ 130 ] countries and 67,000 ADP associates deliver compliant HCM solutions, local expertise and trusted relationships to more than 1.1 million clients every day. We connect directly to tens of thousands of government entities, tax authorities, regulatory bodies and banking institutions globally. Our final mile ecosystem is extremely difficult to replicate and becomes even more important as the regulatory landscape becomes more complicated and fragmented by country, state, city, town and municipality.

Large businesses already recognize how hard it is to get this right. We just recently secured several new enterprise clients, including one of which has tasked us to deliver a 30 current payroll transformation. These clients trust ADP for these complex processes because we understand what's required in each country, we have the infrastructure, and we can flex to support their exact needs.

AI is changing work and the workforce. We know there will be new regulations, new workforce models and new risks. AP is purpose built for this challenge. We bring together the regulatory discipline, data integrity, process intelligence and human guidance required to productively incorporate AI into [indiscernible] critical HCM. That's why the world's leading organizations choose ADP as their partner for a rapidly changing world of work.

I would like to take a moment to thank all our associates worldwide for their exceptional service and performance as we continue to advance our strategic priorities in the age of AI. Every result we report every client we serve and every innovation we launch starts with them. We said at the top of the call that this is a defining moment for HCM. I believe that deeply, and we know just as deeply that ADP is strongly positioned to capture the opportunity ahead.

And now I'll turn the call over to Peter.

Thank you, Maria, and good morning, everyone. I will start by providing some more color on our third quarter results, and we'll then update our fiscal 2026 outlook. This morning, we reported strong third quarter results that included 7% revenue growth, 80 basis points of adjusted EBIT margin expansion and 10% adjusted EPS growth. These results were all ahead of our expectations, and we are adjusting our full year guidance to reflect this performance as well as making a few other changes, which I'll detail. One thing worth noting before I get into the numbers. The margin expansion we achieved reflects disciplined investment. We are funding our AI transformation across our products, internal tools and service delivery while continuing to deliver on our financial commitments. This discipline is intentional, and it shows up in the results. I will focus on our Employer Services segment first, where I'll cover both our results and our updated outlook.

ES segment revenue in Q3 increased 7% on a reported basis and 5% on an organic constant currency basis with favorable FX contributing close to 2 points of revenue growth. As Maria shared, ES new business bookings were solid in the third quarter, and our pipelines were healthy at quarter end with ongoing macro uncertainty and given the typical importance of our fourth quarter, a range of new business bookings outcomes remains possible. Accordingly, we are maintaining our 4% to 7% full year growth guidance.

Driven by our strong ES retention performance in Q3, we are improving our guidance range by 10 basis points and now forecast ES retention to be flat to down 20 basis points for the year. ES [ pays ] per control growth remained at 1% for the third quarter and our updated outlook calls for about 1% growth in fiscal 2026.

Client funds interest revenue increased by more than we anticipated in Q3, driven by 9% growth in our average client funds balances. We are increasing our full year average client funds balances growth forecast to about 6% and are continuing to expect an average yield of approximately 3.4% for the year. As a result of our revised expectation for balances growth, we are increasing the midpoint of our fiscal 2026. Client funds interest revenue forecast by $25 million to a range of $1.34 billion to $1.35 billion. We are also raising the midpoint of the expected net impact from our extended investment strategy forecast by $25 million to a range of $1.3 billion to $1.31 billion.

We also now expect overall ES revenue growth of 6% to 7% for the fiscal year. Our ES margins increased by 130 basis points in Q3, driven by operational productivity improvements that we are realizing across our business as well as the contribution from cline fund interest revenue growth. The investments that we are making in AI, in service tools and in product innovation are yielding meaningful productivity improvements in our business, allowing us to reduce our cost to serve, while at the same time, enhancing our clients' experience. As an example, our continued investment in our RAM platform, along with the AI-powered tools that were deployed to support our more than 900,000 small business clients have enabled an 8% year-over-year reduction in client contacts in fiscal Q3, our busiest quarter of the year.

These outcomes help us drive faster margin expansion and a better client experience, as shown by our continued record client satisfaction and retention results. The good news is that while these outcomes are becoming more meaningful and are now starting to manifest more noticeably in our financial results, we believe that the opportunity in front of us is substantial.

We are only in the very early innings in terms of what this can yield in terms of a superior client experience as well as business growth and financial benefits for ADP. Turning now to the Total PEO revenue increased 7% in the third quarter, with PEO revenue excluding zero-margin pass-throughs, growing 5%.

Stronger PEO new business bookings growth helped offset some continued softening in PEO pays per control growth in the quarter keeping growth in average worksite employees at 2% for Q3. We continue to forecast fiscal 2026 average worksite employee growth of about 2%. We also saw continued strong growth in gross payrolls as well as higher Sui revenues, both of which contributed to the uptick in peer revenue growth in the quarter. Following the strong revenue performance in Q3, we are increasing our full year revenue growth guidance to 6% to 7% and raising our PO revenue, excluding zero-margin pass-throughs, growth outlook to 4% to 5%.

[ ES ] Margins decreased 120 basis points in Q3, driven mainly by 0 margin pass-through growth, higher SUI costs and higher selling expenses. Putting it all together, we are increasing our fiscal 2026 consolidated revenue growth outlook to 6% to 7%, and raising our adjusted EBIT margin expansion forecast to 70, 80 basis points. Our full year effective tax rate burden of around 23% is unchanged. And finally, we are increasing our fiscal 2026 adjusted EPS growth forecast to 10% to 11%, which continues to be supported by share repurchases.

As we look ahead to fiscal 2027, I also wanted to share a few early thoughts. First, we were pleased to increase our adjusted EBIT margin expansion guidance in fiscal 2026. While it is still early in our planning process for fiscal '27, we remain very focused on continuing this acceleration when it comes to margin expansion as we realize further productivity benefits from our AI transformation. Second, as a result of our laddering strategy, we remain positioned for continued tailwinds from our client funds portfolio as anticipated reinvestment rates remain above the average yield of our maturing securities driving overall yields expected on the portfolio above fiscal 2026 levels.

And finally, you will have noticed a meaningful increase in our share repurchase activity during this fiscal year to date. We expect to continue share repurchases at or above these elevated levels across the balance of this year and throughout fiscal 2027, absent major changes in the market backdrop. I would like to emphasize that this elevated buying is in addition to our long-standing commitment to growing our dividend and to the levels of investments that we are making and will continue to make in our business to best position us for success in the future.

We remain laser-focused on driving growth in our new business bookings and maintaining strong client satisfaction and retention levels while at the same time investing in our products, our people and our AI capabilities to deliver sustainable revenue growth, margin expansion and shareholder returns over time. Thank you. And I'll now turn it back to the operator for Q&A.

[Operator Instructions] Our first question comes from Bryan Bergin with TD Cowen.

This is actually Jared Levine on for Bryan today. I wanted to start in terms of the implied 4Q guidance. I know you're not guiding FY '27 at this time, but anything to call out in terms of using that implied 4Q revenue growth rate as we think about FY '27 growth year? .

Thank you for the question. Yes. Look, I mean, we guide to a range of outcomes. So the guidance that we've increased our revenue guidance. We're very happy with that increased our margin guidance and our EPS guidance. I think there's still a lot to do in the fourth quarter with respect to bookings, with respect to retention in the PEO. So we're not really going to be more precise than the ranges we shared, but we feel confident with respect to our trajectory going into the fourth quarter and exiting the fiscal year. Probably the one thing I would note would be we benefited by a little over 1.5 points of FX in the third quarter in ES segment I'm talking about.

We're expecting that to moderate a little in the fourth quarter, so a little bit less benefit from FX on the revenue side, should help the margin profile a little bit because whilst it's a revenue tailwind. It's a little bit of a headwind from a margin perspective. So that's really, I guess, the only specific point I would call out with respect to being different to Q3, but we feel confident with our guide and our exit point.

Understood. And then good to hear about the record 3Q Employer Services retention rate. Can you dig into if that was broad-based or specific any areas and kind of where you still see areas for opportunity to improve that retention rate?

Yes. Jared, it's Maria. And equally as pleased with the with the result in retention. It exceeded our expectations and we raised the full year guide as a result of that, and we feel that overall, it was broad-based strength. The notable improvements that we saw across international compliance, enterprise, small business, really saw strength in return and services. It actually hit a new quarterly record for us.

So it was broad-based strength. We're really pleased with what we're seeing. I think it's a direct reflection of the investments we've made into product, the investments we've made into service and how we engage with our clients, some of the things that we discussed during the prepared remarks. So really pleased with the result in retention.

Our next question comes from Mark Marcon with Baird.

Congratulations on the strong results. I'm wondering if you can talk a little bit about the bookings. You didn't change the forecast range for the year, and it's still relatively wide with 1 quarter to go. Can you just discuss a little bit about what you're seeing with regards to the bookings in the third quarter and year-to-date? And specifically, any areas that you're seeing really good results in, in terms of the various segments? And also, to what extent can you give some commentary in terms of whether or not you're still seeing kind of a 50-50 mix in terms of bookings as it relates to upsells versus brand new logos? And then I've got a follow-up.

Okay. Thanks, Mark, and good to hear from you. Happy to comment on the overall demand environment and bookings. So first and foremost, we were very pleased with what we saw with respect to bookings in the third quarter. We built on the momentum that we had the first couple of quarters, the first half of the year.

So pleased with where we sit heading into the fourth quarter. But as always, we have a lot to get done in the fourth quarter. I'll get back to that. I think the strength that we saw specifically in the third quarter was anchored in some of the areas that I mentioned, international. That's a highlight for us. Obviously, there's a lot happening in the world. So pleased to see the strength in international. Excited to see the strength in compliance. I think that speaks directly to some of the commentary I made around the infrastructure and Final Mile and the connectivity that we have.

That business is the business that connects a lot of these things to the infrastructure of how payroll actually gets done in the world. also saw strength across our small business portfolio in the additional, call it, beyond payroll offerings of insurance and retirement services, which again speaks to kind of the strength that we're seeing in the down market. So overall, really pleased with the third quarter with respect to the overall performance. I would say, as we head into the fourth quarter, there's always a lot to get done.

We left the range relatively wide, as you mentioned. I think all of those options are outcomes for us. The sensitivity of it, if you will, is around $20 million, $21 million per percent. So if you imagine, 8,500 sellers, which is about what we have that are at the ready with all the right products, a stable backdrop from a demand perspective, all the right incentives, everybody is excited to execute about throughout the fourth quarter with good solid pipelines, but we have a lot to get done as we always do at this time. To answer your question around the 50-50, it's exactly the same. So it's about 50% that comes from new logos and 50% that comes from anything, call it, beyond payroll or additional business. So that's the -- that's what we have as a backdrop, and we're pretty excited with what we need to get done in the fourth quarter.

That's excellent color, Maria. And then with regards to the financials, One, you mentioned how AI is taking you more efficient. And I couldn't help but notice that the R&D or the program costs were relatively flattish despite the nice increase in terms of revenue. And I'm wondering if you can talk a little bit about some of the efficiencies that you're gaining across the board from AI and particularly in terms of new product development and the tools that you might be employing there, both in terms of reduced expenses, but also speeding up the development process.

Thank you, Mark. Yes, look, I think the R&D cost line, just to be clear, has obviously the usual accounting treatment. So again, there's capitalization, there's amortization and so on and so forth. "I'm not sure what you're looking at, but at least quarter-to-quarter or sequentially then one may not move that much. We have a continued investment. We also allocate within priorities. So we've certainly pivoted more of our spending in R&D towards AI initiatives, be it on the product side to benefit our clients as well as on the efficiency side.

So there's a range of different things. Some of the expense also is carried in operations where where we're spending and investing to deploy the zone, our proprietary service built on Salesforce technology that's rolling out AI infused and certainly helping. And then we have other examples [indiscernible] I'll give you one example that in addition to what we mentioned in our prior remarks. So in India, it's also year-end in India at March 31.

We actually had a reduction. We do a lot of work for our clients, validating tax advantage sort of allowances and the receipts. We actually deployed AI this year for the first time, reduced the core volumes by 35% in the year-end process, also reduced the labor by 35%. That was deployed against that sort of manual but very necessary compliance efforts. So it's really a broad-based thing. We certainly have pointed our investment dollars in the direction of AI as well as the usual spend that we like to do to bring best-in-class products to market.

And I wouldn't necessarily be too much into the sequential nature of the R&D program cost line in the P&L. Some of that can be accounting and some of that can be reallocation of dollars either within R&D or between R&D and operating costs.

Our next question comes from Jacob Smit with Guggenheim Securities.

Can you provide an update on your traction in the quarter? And just in general, with [indiscernible] unique architecture compared to with standard across legacy HCM platforms. Are we seeing Lyric open up new use cases or customer segments that weren't really serviceable before? And also on a related note, we've heard from enterprise customers that Lyric is being deployed in some cases as the best-of-breed payroll and compliance layer Lyric alongside, these existing HCM platforms. Can you just talk about how prevalent that buying motion might be whether that's expanding the addressable market beyond pure displacements?

Yes. Thanks, Jacob. I appreciate the questions around Lyric. As always, we are incredibly excited about the momentum of Lyric. We didn't call it out in the bookings commentary, but certainly pleased with what we've seen in terms of the pipeline build and the execution on Lyric, call it, year-to-date, had a couple of examples, obviously, in the prepared remarks on the impact of AI within Lyric and some of the things that we're solving for, for clients.

So to address the traction, I would tell you, our clients are equally as excited. We're excited. You see this front and center just this quarter. We had our annual rethink event, which is our enterprise customers on a global scale, getting together to really talk about how they're solving for things like global payroll global time. We also had our meeting of the minds meeting just a couple of weeks ago in Orlando, which is about 2,000 of our Enterprise lines in the U.S. getting together. And I will tell you that Lyric is, for sure, gaining the momentum and attention of analysts clients is the architecture. You mentioned the architecture. It does create new use cases. The way that we have it deployed with the ability to be position management base as well as traditional base does create an architecture that's incredibly flexible, it's dynamic.

That's why it's resonating both with the analysts and the clients, not just because it's modern and new and have AI in the side, but very core the engine and how it's architected allows for the flexibility and dynamic way to manage work and how work happens today, and that's start what I am busy talking about with our clients, which is how do we solve for this new future work, how do we lean into how they're actually running and operating these businesses and Lyric does that it fits squarely into that.

So it is opening up new dialogue, new conversations with our clients, I suppose, new addressable use cases to use your language. I think in addition to that, as you [indiscernible] our global time story, which really came about through the Workforce software acquisitions. So you think about Global time, global payroll as well as global HR. There is this ability to plug these things, call it all together as we go to market in addition to, by the way, having global service, and that's unique for ADP. So again, it's changing the conversation with those clients who are looking to us to solve for this new world of work that we find ourselves in.

So we're really excited about where Lyric is taking us both from a narrative perspective, and a pipeline perspective, but also from an addressable market perspective. And there are use cases where we can deploy Lyric in new and unique ways, that are gaining traction and more to come on that probably as we head into '27, but really excited to the places that it's taking us and it's definitely changing the conversation in the market.

And just a quick follow-up, too. As Lyric bookings ramp in the large enterprise, how are you thinking about scaling implementation capacity over time, whether that's investing internally or potentially working with system integrated partners in the future?

Yes. Jacob, I'm so glad you asked because I left out that part, which is an important piece. The answer to the question is both. So we are scaling internally. But we also have this ability to go to market with system integrators in a more meaningful way than we have in the past. So we've had relationships, both with mid-tier system integrators as well as call it, the more global system integrators.

Certainly, we've learned a lot from the acquisition of Workforce Software as they've been partnered deeply with many system integrators, think the likes of Accenture, and we also have relationships with others, be it UI, KPMG, et cetera. But we're really excited to continue to build out, especially as it relates to this marriage between global payroll and global time and our ability to put that together with the systems integrator that's also working with that client to solve in real time for the future of work. So a big piece of our strategy, really excited to see where it leads us.

Our next question comes from Dan Dolev with Mizuho.

Maria. I think Peter, great results. Congrats, well deserved. I wanted to ask about, I know there was a question about AI and R&D, but more about -- I think your competitor mentioned that there was some difficulty selling software modules. I just want to see from your perspective how this looks? I think last time we talked about it, there was no problem whatsoever. Just wanted to sort of check the box on this one.

Yes, it's a great question. I'm not sure who entirely you're referring to. But certainly from our end, based on our pipelines and our results and again, spending times with our clients, both at the rethink event as well as our meeting of the minds event.

I would tell you that software is alive and well, especially core function type of companies, and that's exactly where HCM fits in. Again, not knowing the nature of the type of company that you're referencing. That's not the case of our vantage point as it relates to HCM. Again, the way we see it is we see the future of work as one that is AI infused and AI really powering workforce, but that doesn't take away the need to actually manage this year orchestration of paying people and keeping them compliant.

And so while it's reshaping the work really at the task level, and that's the research we were doing with Stanford that we see the need to ultimately manage work is actually becoming more complex, not less complex. I would say HCM is very different than that. And obviously, the value of getting all of those things right is actually increasing. So the more complex it's becoming the more valuable it is for us to do exactly what we're doing.

I think the other part is in line with that, it's really about having the highest levels of standards, ethics, the need for accuracy, security, and also this idea of auditability because in the world of HCM, be it payroll and the ecosystem that defines payroll or the rest of the HR benefits and all the ecosystems and connectivity that we have to -- whether it's government entities or carriers, the room for error and big or just good enough like it doesn't exist. Payroll needs to be 100% accurate, 100% of the time. And so that's a big differentiator, I think, specifically for HCM, which kind of leads me to I guess, the last point, which is that we were kind of built for this, right? So if you think about us in the 77 years, we've been doing this for our clients navigating through economic cycles, transformation cycles the world of work and all of the stuff is making things more complex.

And we have the background, the trust, the data, the deep domain expertise in our products and services, but also the expert people to help our clients through this. I have to tell you, when I was at the meeting of the minds, and I know it's the case for one of our events this week as well in the mid-market. We're celebrating clients that have 50 years of tenure with ADP.

And I think that's a direct reflection of, as I said on the prepared remarks, like earned expertise, clients are turning to us at this pivotal time to help them navigate this. I'd say HCM is alive and well, definitely a core function and not something that can be replicated easily by any of these new entrants, if you will.

Well, we agree. Congrats.

Our next question comes from Tien-Tsin Huang with JPMorgan.

Just thinking about the outlook revision up and the good results here. Can we go through quickly the attribution of what's driving the change the outlook? It seems like it's higher balances, some improvement in retention is the majority of it? Did I catch that? I just wanted to make sure I covered the -- we covered that.

Yes. Thanks, Tien-Tsin, for the question. Yes, we're very pleased to increase the outlook. I think part of that is obviously the strong performance that we've delivered in Q3. The balance growth, we've increased our balance growth there. We see solid sort of underlying revenue growth opportunity in both PEO and and in Employer Services exiting Q3 going into Q4.

Some of that is retention. As you mentioned, some of that is the pace per control lift in terms of our guide that we made for Employer Services. And another piece I just wanted to mention is price. So the last couple of quarters, we've been talking about looking our goal to achieve around 100 basis points of contribution from price, I'm pleased that our outlook actually is reflected a little increase in that. So expecting more like 130 basis points from price.

And I think that is positive, not only obviously for our financials, but when I compare that with our client satisfaction scores and our retention scores, both at record levels. Our offering is resonating the tools, the products that we're deploying resonating, and there -- where we're able to achieve value for that through our pricing. So there's a number of levers, all more or less working in the same direction, as I mentioned in one of the earlier questions. The only thing that we see softening a little bit going into Q4 is the contribution from FX, which was a little larger than we contemplated for Q3.

We're not conflating the same level of contribution from FX to our revenues in the fourth quarter.

Okay. Perfect. We're going through that, and then the pricing is definitely emerging that you're able to see more value. Maybe just my somewhat related to that, just thinking about competition and bookings. I think Mark asked about it well. But any change in competitive intensity? I know there's a lot of focus here on some of the starts and maybe some of the more AI native or digital native companies. Any change there, Maria, that you're seeing? I know your bookings is reaffirmed, which is great. We'd love to get a little more on what's going on in the ground.

Yes. So it's a great question. I certainly understand the nature of it. I think with respect to any new type of entrants and [indiscernible] and in term of anything that would have entered the market in the last, I don't know, a quarter or 2.

I wouldn't say we're seeing anything new and exciting there that's increasing levels of pressure or competition. I would say it's always competitive, especially, by the way, in the back half of the year. So certainly, Q3 represents a big bookings quarter for us. Q4 represents a big bookings quarter for us. And since we kind of set the tone in the market for HCM, it's always competitive this time of year. And there are lots of very formidable competitors out there. But I wouldn't say that there's anything to call out that's changed.

Certainly, there's some noise with certain companies that are potentially, I don't know, going public, some were going private [indiscernible] emerging. There's always some of that. There's always incentives being put in the market. By the way, we're putting incentives in the market. But I would say the to me, as somebody who's had a front row seat to the competitive landscape for decades, I would tell you, it feels pretty normal, if you will.

It's highly competitive. We show up well. We show up well with good products, good service, incredible distribution, an incredible ecosystem around us and that distribution accountants brokers SIs and certainly, the investments we're making. So I would say -- and I could go through each one of the markets, but I would say it's relatively competitive, which is exactly the type of sport we like to play.

Our next question comes from Scott Wurtzel with Wolf Research.

Just one for me. The commentary, I think, on ADP assist. It was great to hear, but I think more broadly now that you've had some of these products and AI features in the market for some time now. What is sort of the overall feedback that you've been hearing from clients regarding these products? And is there anything potentially more on the AI front from a product perspective that clients are looking for?

So I'll start, and certainly, Peter, if you have anything to add. I would tell you, Scott, that the feedback is incredible. I cited a couple of examples. I probably could have gone on for 30 more off the top of my head. In terms of use cases, the impact that it's making. I think it speaks volumes. You see it in the client satisfaction. You see it in the retention, and you also see it now in our efficiency and our results.

And so I think there's a lot to be said for the work that we've done over the last 3 years. I think we were quick to organize. We've been able to infuse AI throughout the entire organization, whether it's on the go-to-market motion, it's in the product, it's really across the entire enterprise, how we build the products.

So I think feedback from the clients is meaningful when they start seeing the impact of workflows being changed and then becoming either more efficient or saving time. And so I think it's also, though, exactly what they would expect of us. And the good news is, I think we're only just scratching the surface. So as we continue down the road map of the ADP assist overarching umbrella across each one of the HCM film, and we continue to change workflows continue to build more efficiency into how we service our clients or how they're being experts at our clients are able to engage in the work that they're doing. We're pretty excited about the feedback thus far, but there's there's a lot more where it's coming from and a lot more that we can bring to the clients, and we look forward to doing that throughout the coming years.

Our next question comes from Jason Kupferberg with Wells Fargo.

So obviously, still a lot of debate in the market about how AI could impact seat-based revenue models. I think ADP has said in the past, a 1% change in pace per control impacts ES revenue by about 25 bps. So can we infer from that, that only about 25% of the ES business, excluding float is priced on a per employee per month basis? Or is there more nuance to it. And then just on the PEO side, I think the revenues are more tied to client head count there. But maybe if you can clarify all that with some numbers, that would be really helpful.

Thanks for the question, Jason. No, on the employee services side, we have a higher propensity or proportion, if you like, of our revenue that you see this than 25%. So in the down market, it's actually lower than that or about 80% of our revenues are base fee. We have other revenue models in the downmarket in Retirement Services, for example, Insurance Services is more of a commission model on our -- on insurance premiums that we sell. We have asset-based revenues as well as participant-based revenue in the down market.

In the mid-market and the upmarket, though, we were much more, if you like -- we're much more seat-based models. We do have the revenue streams, implementation and project services and so on that we are much more attributed to the seat-based model. In saying that, we feel like there's -- it's a value-based price approach that we've always taken. So again, the value we confer is not necessarily linear with the number of employees the client has. We're providing compliance. We're providing people getting paid a good experience being moved. So again, I think we have opportunities should the need to araise, we're not seeing need arising in the data at the moment with respect to pivoting the model in whatever way would make sense for us and our clients, should that be the case.

I would say it's more indirectly an employee-based model or a seat-based model. The predominant billing model we have in the PEO is the percentage of payroll. So obviously, the number of employees can influence the percentage of payroll that so can wage levels, wage inflation, obviously, some of the pass-through revenues, like taxes and workers' comp and things like that. So really, I would say the PEO model probably is less directly exposed to to the seat-based pricing mechanism than maybe the mid-market and upmarket of the ES space.

Okay. So that's good color. And I wanted to just come back on bookings. I know we're reiterating the guide here. It feels like the tone qualitatively all year has been consistently just wanted to get your take on relative confidence in kind of the lower end versus the higher end of the 4% to 7%. I know it can kind of come down to the wire during the last quarter of the fiscal year, but just how you're feeling about that with 2 months to go?

[indiscernible] You would have guided differently, but I think all of those options are on the table, if you will. But we feel good about pipelines. We feel good about the incentives. We feel good about the sellers, the ecosystem, the products, the backdrop, HCM backdrop seems stable. So I think we're excited to see how this fiscal year ends, but we're certainly at the ready and executing against it. .

Our next question comes from Ramsey El-Assal with Cantor Fitzgerald.

Congratulations on some solid results today. The PEO segment margins came in a little bit below our model. And you mentioned a few drivers. I think one of them was higher selling expenses. What does that mean exactly in this context? Is it like concessions to new clients or higher incentive for your sales staff? Just trying to figure out sort of what that is and what it implies.

Thanks for the question, Ramsey. Yes, there was probably 3 things that went on in the PO with respect to margins this quarter. One of them is higher selling expenses. I'll get to that. The other is the SUI revenues came in stronger than we were expecting, and we were pleased to see that given what it represents in terms of wage base and so on, but it comes at a lower margin. The third piece, which is maybe less noticeable as we had positive -- some positive reserve releases in the workers' comp reserves for indemnity, less positive than the same time last year, which produced a little bit of margin drag in the in the PEO. But back to the selling expenses, the real reason why the selling expenses were higher was, we had a really strong quarter in terms of sales. So again, that creates -- there's a variable cost model with respect to selling, and we had a strong quarter, as Maria alluded to earlier with respect to PO sales, so that brought additional selling expenses -- the pays petrol, as I mentioned in my prepared remarks, continued to soften a little bit in PO. It was solid in ES, softened a little bit in the PEO.

That is a margin revenue that sort of goes away. So when you put the combination of the higher sales, which generate higher selling expense with the with the pace per control situation, you see a little bit of erosion in the margin net -- on a net base in addition to the SUI and in addition to the workers' comp reserve releases being slightly lower this year than what they were last year.

Got it. I have a follow-up. I mean international has been a bread spot in the business for quite some time. Is there a way to accelerate that strategy? This is something you've commented on in the past, but maybe via M&A. Could you kind of press the gas pit a little bit on international to bolster further?

Yes, great question. It's certainly something we look at. We do quite a bit of small, I guess, small deals, but quite a bit of M&A. We've acquired a number of our partners in our [ Silego ] network over the years, including some more recent ones in Mexico, in the Nordic countries. We have that piece. We also have workforce software, which was, as Maria talking about earlier, is a global time offering, not just at the [indiscernible] offering, albeit it was a U.S. company, but it had presence in places like Canada, the U.K., Australia and so on and the product hunts in many occasions across the world beyond on where that company had presence. Is there more opportunity to do M&A.

Yes, I believe so. I think it's a question of finding the right fit, and we have people that are studying the market, and we obviously have contacts with many companies out there. And as and when we find one that would be additive to our model and accretive to our opportunity, ADP, we will certainly look to pursue that, but nothing to nothing to [indiscernible] or announced on the call.

Our next question comes from Dan Jester with BMO Capital Markets.

Maybe a 2-parter on ADP Assist. So your first one is, I don't know if you shared this in the prepared remarks. Have you made any comments about sort of uptake repeat usage, engagement levels with the customers that have access to it. And then the second part of the question is you commented about the payroll agent saving a lot of time, smart actions saving a lot of time. As you roll more of these out, how do you view out sharing some of the value from the time savings that these agents are providing? Maybe this ties to Peter's [indiscernible] about price but sort of any comments on that would be very helpful.

Sure. Thanks, Dan. Really excited about the progress we're making across the ADP Assist portfolio and innovations, if you will. And I think we are seeing that uptake in terms of clients, and we're definitely seeing -- I think you asked about repeat clients. I would tell you, as often is the case in many of these AI tools that we will engage in. Once they get started, they get, call it, hooked on continuing to process improve and engage with these tools. And so you definitely see those that, engagement like the smart actions and the Smart Search come back time and time again and kind of pick up where they leave off and continue to work and that's exactly what would be expected of these tools, and I think they're bringing the intended value.

And certainly, our clients are looking to us to continue to innovate across each one of these films of the HCM domain to make the workflows easier and to make things better for them and better for us. And that's really how we think about it. I think it's showing up well in things like retention and bookings and efficiency. Peter cited some stuff around the places that we have these tools deployed internally at ADP and what it's yielding in terms of efficiency in our small business and wisely, and we will continue to see that. And certainly, we see that at the client side as well. In terms of how we think about it from a price perspective, I think Peter made the comments earlier in terms of our value-based pricing, I think that's what we're always solving for.

So we're not really looking at this as a discrete usage type of fee at a piece by piece level. We really look at it as core in the fabric of how we operate and how we deploy our products to our clients. And I think it shows up in things like margin and efficiency. I think it shows up in bookings. I think it shows up in retention, and that's kind of the way we think about sharing this opportunity with our clients. I don't know if you have anything to add there, Peter.

No, I think it's important to recognize, like the -- in everything we do in this area, we're looking at where is the value and how should that be attributed. So again, whether this is through specific pricing, whether that's through general pricing base, whether it's through revenue share models, we have -- Maria was talking about in the prepared remarks the market, this agent program that we've just launched as well as our own internal efficiency and cost savings. For us, it's less about, I guess, how do we specifically price, that's certainly important. But ultimately, what is the value created, what is the appropriate allocation of that between ourselves and our clients and monetizing that, taking advantage and monetizing that for mutual benefit. That's really what we think about it. And there's probably a laundry list, I guess, of different scenarios, which we don't have time to go through today in terms of how we do that. But I think you can rest assured that we feel strongly about capturing the value that we're conferring through pricing and other mechanics as well as, obviously, what I was talking about on the efficiency side, that is certainly a bottom line savings that go to our EBIT numbers as well as likely will be fueling our further and future investments in this area. That's really helpful.

And then just as a follow-up, actually, is on the marketplace. And maybe just philosophically, maybe give us an update on sort of partner versus build it yourself for these third-party agents and ultimately, are you ambivalent whether a customer uses your build agents or a third-party agents? Or how should we think about that evolving over time?

It's a great question, Dana. And I would start by saying we are not ambivalent. The way we think about it is always putting the client first. So it's really about the client and how do we solve for them and make their world easier that's what led us to be verse to launch an ADP Marketplace. It is the largest HCM marketplace. We have over 800 integrated solutions across the globe actually as well. So we've expanded the footprint in the last year or so. internationally, and it's really about providing those clients the choice and the ability oftentimes to connect their systems and their views on their workforce, their views on things like compliance, their views on whether it's time.

So it's not an ambivalent, it's really quite the opposite. It's really about putting the client first and extending our capabilities to meet the clients' needs and demands. And that's exactly what the marketplace does. What I was excited to share during today's call was also our approach with respect to doing that in a secure and ethical data way in this new world of AI. And so we have AI agent kind of partitioned off inside of our ADP marketplace to make sure that they're operating the right way for our clients in conjunction with us, and that's really exciting as we think about, again, clients that are navigating all of these things across the HCM landscape to do the right thing for their employees and their workforces and how we can show up there and make that work for them as an imperative piece to our strategy.

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

Thanks, Michelle, and thank you, everyone, again, for your interest and for joining us. As you probably heard throughout the call today, I believe deeply in the world of work. I believe everything that it represents all the beauty and human connection and what work means to people. And I also believe that this is a defining moment for our industry for human capital management. The leaders need to lead at this time and need to lead in this world of work, and that's exactly what the leader is doing. That is what we are doing. That is how we show up today for our insight is how we show up today for our stakeholders with our results. So I'll end with where I ended the prepared remarks, which is that every single result, every single award, every single client, that's an extension of us and our culture that we serve and every innovation that we're bringing to the market it starts with our ADP peers and our ADP associates. And I couldn't be more proud and grateful to represent us today. So thanks for the time. .

Thank you for your participation. You may now disconnect. Everyone, have a great day.

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 Second Quarter Fiscal 2026 Earnings Call. I would like to inform you that this conference is being recorded. [Operator Instructions]

I will now turn the conference over to Matt Keating, Vice President, Investor Relations. Please go ahead.

Thank you, Michelle, and welcome, everyone, to ADP's Second 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, and thank you, everyone, for joining us. This morning, we reported strong second quarter results that included 6% revenue growth, 80 basis points of adjusted EBIT margin expansion and 11% adjusted EPS growth. We achieved these financial results while also making meaningful progress across our strategic priorities. Before discussing this strategic progress, I will briefly review some additional highlights from our results. We delivered solid Employer Services new business bookings growth in the second quarter. We enjoyed broad-based strength with the fastest growth in our international U.S. enterprise and compliance businesses. .

Our small business portfolio and mid-market business also contributed to the growth in the quarter. With good momentum and healthy pipelines, we are focused on driving continued new business bookings growth in the second half of our fiscal year. Our employer services retention rate matched our expectations with a modest decline in the second quarter. We continue to benefit from a stable overall business environment and very high levels of client satisfaction. In fact, our overall client satisfaction results represented the single best quarter in ADP history. Employer Services pays per control growth rounded up to 1% for the second quarter representing modestly higher year-on-year growth compared to the first quarter. And last, our PEO revenue increased 6% in the quarter, helped by growth in 0-margin pass-throughs and solid new business bookings growth. Our 2% growth in average worksite employees included a moderation and PO, pays per control growth. Peter will share our updated outlook in a few minutes, but we believe the demand environment for our PEO and other outsourcing services also remains healthy. We are proud of our strong second quarter financial results and excited by the progress we continue to make across our 3 strategic business priorities. I will start with what we are doing to lead with best-in-class HCM technology. We are very pleased with the strong traction our Workforce, now NextGen and ADP Lyric HCM platforms continue to experience Workforce. Now Next Gen is being embraced by our mid-market clients for its always-on payroll processing capabilities, generative AI functionality and expedited implementation time lines.

We reached a milestone in the second quarter with our first sale to Ian with more than 1,000 employees. The client, a logistics company in the Midwest, selected Workforce Now Next Gen based on the strength of its underlying technology and the breadth of its integrated solution, which included payroll HR benefits administration time and attendance and learning. Workforce Now NextGen is a great example of how we build products to solve real-world challenges, HR teams face each day and we do so by combining our Next Gen platforms investments in AI and automation and robust compliance expertise to support our clients' wide-ranging needs.

In the enterprise space, [indiscernible] new business bookings once again exceeded our expectations in the second quarter, and its new business pipeline continued to expand at a rapid pace. Underscoring Lyric strong reception in the market, more than 70% of its new business bookings and overall pipeline related to new logos as it continues to fare favorably against our competitors.

Organizations are turning to [indiscernible] for its flexibility to enter and human-centric design that enhances the employee, manager and practitioner experience, Among our many Lyric new business wins in the second quarter were 2 companies with more than 20,000 employees, which represents 2 of our largest clients sold on the platform to date.

Earlier this month, Lyric was named a winner in the 2026 Big Innovation Awards presented by Business Intelligence Group earning recognition for driving transformative impact in the HCM industry. In addition to building our own best-in-class solutions, we strive to enhance our HCM offerings through acquisitions that complement our business. Our October 2024 acquisition of Workforce Software is a great example. During the second quarter, we launched the ADP Workforce Suite, our integrated workforce management solution across our leading payroll and HCM platforms. Clients now have the opportunity to offer their employees around the world, a unified time, pay and HR experience with best-in-class workforce management tools at their fingertips. We are already seeing benefits from our integrated approach, winning several deals in the second quarter that included the ADP Workforce suite. We also partner with others to accelerate innovation.

In December, we successfully embedded Fiserv, Cash flow Central and integrated accounts payables and receivables management solution into run in order to help our small business clients better manage their cash flow. The run powered by ADP platform brings payroll, contractor payments, bill pay and invoicing together in 1 clear connected experience. With payroll and payments in sync, our clients can do more and less time and steer their business forward confidently. AI remains central to our technology strategy, and we are moving full speed ahead to leverage it in attracting, serving and retaining our clients.

We continue to scale the usage and capabilities of our client-facing AI, including the launch of new ADP Assist, payroll, HR analytics and agents that apply advanced intelligence to real workforce challenges, built on ADP's comprehensive global data platform, these new persona-based agents help organizations manage people streamline processes and make informed decisions that support people at work.

For example, ADP assist tax registration agents can proactively identify when clients have missing or incomplete tax IDs and guide them through every step of the registration process. Additionally, our ADP assist HR agents can create key talent actions instantly such as initiating a promotion simply by the user typing what they want to do. The system delivers real-time answers and guided next steps, reducing time spent navigating HR workflows.

And our AI solutions are designed with a human-centric approach that enhances the value and meaningful connection we all derive from our work. Unlike generic AI saloons ADP's approach combines proprietary workforce insights with advanced automation to solve real workforce challenges while maintaining the security, governance and compliance standard companies trust. Our second strategic priority is to provide clients with unmatched expertise and outsourcing solutions. Success here requires us to carefully consider the breadth of our solutions and to continually evolve to best meet client needs.

To this end, we were excited to introduce our first pooled employer plan or PAP, within our Retirement Services business during the second quarter. [indiscernible] is a single 401(k) plan that less unrelated employers participate together with a pooled plan provider acting as plan sponsor named fiduciary and plan administrator. This arrangement shifts most of the compliance filing and oversight burdens from employers to the pooled plan provider. Our save for retirement, pooled employer plan brings together scale, integration and fiduciary support, allowing employers to offer robust retirement plan benefits without adding administrative burden. Clients gain scale-driven cost savings, reduced administrative work and lower fiduciary risk.

Finally, we are focused on executing on our third strategic priority, benefiting our clients with our global scale. We serve more than 70,000 clients outside of the United States where we pay more than 16 million wage earners across more than 140 countries. Our mix of global solutions includes both in-country and multinational offerings. During the second quarter, we won the business of a large European bank with more than 75,000 employees. This win demonstrates the power of our brand built by having associates on the ground for decades in most of our international markets. We also recently enhanced our global payroll platform through more intuitive dashboards with clear messaging and easier navigation, all of which reduce manual tasks and enhance the overall user experience.

The investments we are making in our international business are being noticed as we were recognized recently in the HRM Asia Readers Choice Awards, winning 2 goals in 2025 for best HR Tech outsourcing and payroll solution. Overall, our second quarter represented strong outcomes on the financial front and with respect to our key strategic priorities, I'd like to take a minute to thank our associates who continue to deliver exceptional products and outstanding service to our clients, particularly now as many of them are in the middle of our most hectic time of year completing here on work. Their consistent effort over decades has established our company's trusted corporate reputation, and I am proud to announce that ADP was recognized earlier this month by Fortune Magazine as one of the world's most admired companies in 2026. This marks ADP's 20th year on this annual ranking, and I would like to congratulate all 8 peers on this well-earned accomplishment and thank them again for all that they do for ADP and for our clients.

And now I will turn the call over to Peter.

Thank you, Maria, and good morning, everyone. I will start by providing some more color on our second quarter results and then update our fiscal 2026 outlook. Overall, we reported a strong second quarter with our consolidated revenue growth adjusted EBIT margin and adjusted EPS growth, all coming in slightly ahead of our expectations. Let me focus on our Employer Services segment first, and I will cover both our results and our updated outlook. ES segment revenue in Q2 increased 6% on a reported basis and 5% on an organic constant currency basis, with FX contributing about 1 point of revenue growth in the quarter. As Maria shared, ES new business bookings were solid and broad-based in the second quarter.

With continued healthy pipelines, we are maintaining our 4% to 7% new business bookings growth guidance for fiscal 2026. The Yes, retention was in line with our forecast, declining modestly versus the prior year. We are keeping our outlook of a 10 to 30 basis point decline in full year retention unchanged. ES Pays per control growth improved slightly, rounding up to 1% for the second quarter, and we continue to forecast about flat pace per control growth for the full year. Client funds interest revenue increased slightly more than we anticipated in Q2, helped mainly by higher average client funds balance growth. We have increased our forecast for average client funds balance growth to 4% to 5% in fiscal 2026, and we continue to expect an average yield of approximately 3.4%.

Accordingly, we are increasing our full year client funds interest revenue forecast for $10 million to a range of $1.31 billion to $1.33 billion. We are also raising our expected net impact from our extended investment strategy by $10 million to a range of $1.27 billion to $1.29 billion.

On an overall basis, we are also increasing our ES revenue growth outlook to about 6% for the full year. ES margins increased by 50 basis points in Q2, driven by both operating leverage and the contribution from client funds interest revenue growth. Turning now to the PEO. Overall, PEO revenue growth in the second quarter was 6%, while PEO revenue growth, excluding zero-margin pass-throughs, was 3% in the quarter. PEO new business bookings growth was solid in Q2 but did come in slightly below our expectations. This impact, along with some further moderation in PEO pays per control growth weighed on our average worksite employee growth in the quarter. Accordingly, we are now expecting average worksite employee growth of about 2% in fiscal 2026. We continue to expect fiscal 2026 PEO revenue growth of 5% to 7% and PEO revenue, excluding 0 margin pass-throughs to grow by 3% to 5%. PEO margins decreased 70 basis points in Q2, driven mainly by 0 margin pass-through growth and higher selling expenses.

As we highlighted on our Q1 conference call, we do expect positive contribution to overall ADP margins this year from our other segment as a result of our client funds extended investment strategy. This margin contribution is being driven by growth in our corporate extended interest income, while at the same time, our short-term financing costs are decreasing. We saw this in the second quarter, and we expect this dynamic to continue across the balance of the fiscal year. Putting it all together, we are increasing our fiscal 2026 consolidated revenue outlook to about 6% growth, and we are maintaining our forecast for adjusted EBIT margin expansion of 50 to 70 basis points.

We continue to expect our effective tax rate to be around 23% for the year. And we are also raising our fiscal 2026 adjusted EPS growth forecast to 9% to 10%, supported by share repurchases. Earlier this month, our Board authorized the purchase of $6 billion of our common stock, which replaced in its entirety our 2022 authorization of $5 billion. This new authorization along with our recent 10% dividend increase signals our continued commitment to driving shareholder value and to returning excess cash to our shareholders, which remains a key pillar of our capital allocation strategy.

Finally, a quick note on our anticipated adjusted EBIT margin cadence in the second half of the year. As we mentioned last quarter, we continue to expect a bit of a ramp in the back half of the year for margin expansion. And we currently expect to deliver more of this margin expansion in Q4 than in Q3. And I'll now turn it back to the operator for Q&A.

[Operator Instructions]

And our first question comes from Mark Marcon with Baird.

Lots of significant positives in the quarter. Maria, I'm wondering if you could talk a little bit about the international opportunity, and congratulations on that win. Where do you see ADP currently in terms of addressing that strategic pillar. And what do you think the runway is like? And how do you compare the profitability of the international operations relative to the U.S.? And then I've got a follow-up on PEO.

Sure. Mark, thank you for the question. As you know, international is an entire strategic priority for us. So we have 3 strategic priorities, one of which is candidly dedicated to exactly what you just suggested, which is the opportunity we have in our global space. So how are we doing? How are we faring? Perhaps I can comment on that, and Peter can touch on the impact of that business from a margin perspective to kind of address the second part of your question, how we are faring is very well. I think the strength that we see in our offering is just getting started. I was excited to see the rebound in bookings, specifically this quarter after a tiny bit of a softer first quarter on the heels of a very incredible fourth quarter. So we do know that the international space and those opportunities. They're big. They're complex.

They're broad. They often involve lots of different stakeholders, countries, decision-makers. So how do we show up? We show up well I think the thing that was a highlight for me with respect to this quarter was the 75,000 employee European bank that we cited, but it wasn't just the fact that we had that win, which was tremendous execution by the team. It was also how that win came about, which was a direct reflection of the offering that we have in conjunction with our existing platforms, married to now the workforce suite that we launched. And so that was a key contributor to that win. And I think we continue to make progress in our offerings, in our investments, whether that's through the products, through acquisitions. So we show up well from a product perspective. I mentioned during the prepared remarks how we show up in terms of kind of this balance of ADP associates on the ground in country. That's unique, that's differentiated. So I think in general, and I apologize, I don't know what's happening to my voice. We're very proud of the offers that we have, how we show up in the international space. We continue to execute well from a bookings perspective. And as it relates to the future, I think it's bright for us. And I'll let Peter kind of comment on the margin piece.

Yes, Mark, on the profitability side, the international business is a little bit lower margin than some of the domestic businesses, which I think is is to be understood. I think the retention rates, though, are very, very high. So if you take -- if you look at it from a lifetime value sort of contribution, if you like, to value very much comparable with any of the businesses we have in the U.S. So we're very happy to continue investing in that business. It does drive margin. It's an important contributed to our margin evolution, but it is a little bit lower on the margin as is the enterprise business in the U.S. relative to, call it, the downmarket, mid-market but over a lifetime value of a client, given the very high retention rates, we believe we achieved very similar levels of ultimate value from growing in international as we do in some of the maybe higher margins, sorry, domestic market businesses.

That's great. It seems like a great long-term opportunity. I was wondering on a separate note, can you just talk a little bit more about the CEO and the WSE growth, it has been slowing for a while across the entire space. And Maria, I know you know the PEO space better than anybody. What do you think is contributing to that slower growth? And how do you think about the long-term outlook on the PEO just in terms of WSEs because it seemed to me like we still have a long way to go in terms of penetration in multiple states that aren't as well developed as some of the core states.

Yes, Mark, I'll take that. Maria may want to chime in. But I think we still agree with you. I think we still have tremendous opportunity in the PEO. We've spoken about what we believe is the addressable market opportunity. And we are -- whilst we are clearly the largest PEO, we still think there's plenty of room to grow in that space. And as you know, around half of our PEO bookings come from our own client base.

So get plenty of opportunity there. What's going on at the moment. I mentioned in my prepared remarks, we had solid bookings. Maria also mentioned, we had solid bookings in the PO this quarter. They were a little less than we were expecting, but not a huge difference, but it does contribute when we're sort of dealing with relatively small movements, basis point movements in things like [indiscernible]. We also saw a little bit contrary, again, very small margins here in terms of basis point moves, but we did see a little bit of softening in the PEO pays per control metric in the quarter. We saw a little bit of strengthening. Again, I don't want to overemphasize it, but it's just tens of basis points, but a little bit of softening in the PEO pays per control metric.

By the way, it came in at exactly the same level as the ES metric. I think I mentioned last quarter, the PEO was -- as it typically does, we're sitting a little ahead of the S. It's not always the case, but it's typically the case this quarter that happened to come in together. So just doing the math and looking at sort of where we were in Q1 and where we are now, we felt the lower end of the range was more appropriate.

And hence, we've sort of adjusted our guide. But we're still very bullish on the opportunity. We continue to invest in distribution. We're investing in our product capabilities within Workforce. Now specific to the PEO and certainly feel that there's a tremendous opportunity in front of us with respect to the PEO.

Our next question comes from Tien-Tsin Huang with JPMorgan.

Just a follow-up more [indiscernible] PEO. I'm just curious if you're doing anything differently to spur growth versus plan at the beginning of the year is a lot of talk about health care costs being higher and perhaps SMBs are looking to trade down. Curious if you're seeing any of that if you're responding to it.

Sure. Happy to comment on that. And the general value proposition of the PEO as Mark mentioned, and you know as well, I'm incredibly close to this business, certainly been watching that value proposition over decades. And I can confidently say it's as strong as it's ever been. The complexity of the employer in that space, dealing with whether it's, as you mentioned, health care and the complexity of offering those type of things to your employees. It's very difficult. The PEO fits into that value proposition for those employers. I think the other piece is just the basics of co-employment and what employers are looking to do in that shared liability.

So what are we doing to respond to what is arguably an increasingly complex landscape for those small- to medium-sized businesses. We're investing. So we're investing in our sellers. We're investing in their ecosystem. We talked a lot at Investor Day about the tools that we're developing to serve up the right leads to the right sellers at the right time. As Peter mentioned, a big piece of our value proposition inside of ADP is that ability to mine our own base, and we're getting smarter about that. And so investments into tools, technology to figure out who the exact right fit is for that PEO investment into things such as sales incentive head count. So I can tell you from a go-to-market perspective, not a shortage of focus. The team is laser-focused and building on the healthy pipelines, the momentum. We see that certainly in the solid results in PEO bookings in the second quarter. But we also see it when we look into the healthy activities, RFPs, things of that nature. There's a lot of lot of motion in that space, and we're definitely positioned to take advantage of it.

Great [indiscernible] confidence there. Very important. Just on the margin cadence, Peter, I think you talked about this last quarter about it being more back half weighted. It looked like 2Q was a little bit better than what we had modeled, including the higher float from the higher balances. So 3Q to 4Q. Any callouts in terms of debt function change? And have you changed your investment approach given the higher flow? It sounds like maybe you're investing a little bit more or maybe I just reading it. .

Yes. Yes, Tien-Tsin. The second quarter, I think, came in a little higher than we were anticipating as well. We were pleased with that from a margin perspective. The margin cadence point is sort of really 2 things. As I said, we are expecting continued margin delivery in the second half, a little higher than the first half. The main driver of second half versus first half is we still had in Q1, as you remember, the fourth quarter before the anniversary of the Workforce software acquisition. So we had some acquisition-related drag in the first quarter. Second quarter came in strongly. We're expecting good results in both Q3 and Q4.

The main difference, I think, in Q3 versus Q4 is a little bit of timing of expenses, but that sort of happens from time to time. I wouldn't overemphasize that. The other piece though is the float portfolio, which I think is where you're going. So the float portfolio in Q3 being calendar Q1 is our highest balance period, where we -- bonus season, we have tax rate, tax limits resetting. So we have more float basically in Q1, which results in more overnight balances. And this year versus last year, as you know, we had a 75 basis point reduction in Fed funds between the same period last year and this year. So that creates a little bit of margin pressure in Q3 over Q3 last year relative, we don't really have that in Q4. So we're expecting a little bit more of this. The underlying margin expansion continues, I think, a really good momentum, but that float element as well as a little bit some timing of expenses, we're expecting Q3 not to be quite as strong as the fourth quarter.

Our next question comes from Scott Wurtzel with Wolf Research.

Just wondering if you can talk a little bit more about the overall bookings environment. Just wondering how -- if you can characterize how growth in book sort of trending in 2Q relative to 1Q and even in the context, if we go back to sort of the end of last year and some of the slowdown that we saw maybe on sales cycles, wondering how all of that is sort of trending now relative to 6 to 9 months ago? .

Yes. Sure, Scott. So I think with respect to overall environment, as mentioned during the prepared remarks, the environment is stable. I will tell you that from a new business perspective, we were really pleased with the solid performance in Q2. I think the thing that stands out to me the most with respect to Q2 is that it was broad-based. And so every single business contributed to that growth narrative. Some of the highlights we mentioned during the prepared remarks, certainly, we saw in the enterprise space, just how Lyric is resonating. It's really an incredible story for us.

So really excited about the momentum in the enterprise space. Excited to see that across appliance solutions as well. I think within the small business portfolio, we continue to see strength in retirement services in insurance and mid-market also contributed to the growth. And as mentioned earlier, we had good PEO bookings, although that's not in the employer services number. So I think just broadly speaking, the quarter felt solid, and we were excited about the broad-based results that really were reflected in that. I think with respect to kind of intra-quarter type of stuff, I don't know that there's a lot to glean from kind of what happened to 3 months. I think what I would rest on is that we feel solid about the performance. It was broad-based and that the pipelines are healthy as we step into the back half. But as always, we have a lot to get done in the back half.

That makes sense. And then just a follow-up. I hate to ask the question on AI impacts on hiring. But just in the context of even over the last 24, 48 hours, seeing some incremental announcements enterprises around layoffs and siting AI. I'm just wondering if you have any updated views on that topic and impacts that AI could be having on the broader labor market.

Yes. Thanks, Scott. I'll take that one. We've seen the headlines too. I think more of the headlines I've seen actually have been more about sort of corporate realignment following a big hiring period post pandemic. But in terms of the data we look at, we look at it obviously very closely. We look at it by industry about 10 or 12 industry groups. We're not really seeing anything discernible there.

I mean you look at the labor market situation, certainly, there's the hiring levels are muted job openings are relatively muted. We've been talking about that now for some quarters on this call. What we've also been talking about though and what we still continue to see is continuing reductions in the level of overall layoffs going on in the job market and certainly lower layoffs and our -- across the industry groups, we see a lot of consistency, if you like, in terms of where they're going and sort of areas that potentially you may think of as being more subject to being at risk with AI. We're not actually seeing it in those industry verticals. So things like financial services, things like professional services, tech and so on, we're actually seeing reasonably healthy growth. So it's hard to say, but the day of the empirical data does not really point to that happening at this point in time. the future obviously is yet to be determined.

Our next question comes from Bryan Bergin with TD Cowen.

I wanted to follow up on the international ES and compare that to U.S. So summary, I sense the incremental international focus here in your commentary, the investments you've been making there. Can you just give us a sense on how that's translating to potentially relative revenue and bookings growth of that international ES base relative to US ES?

Yes. I'll take the revenue point, Brian, and then Maria may want to comment more generally. But in terms of the revenue mix, it's not really changing. I mean, again, with the international space, the bookings that we're talking about and for example, the 75,000 employee European bank. Those things take quite some time to come through to revenue generation, their large sort of enterprise implementation projects. So in terms of bookings performance, whether it's this quarter or in recent quarters, versus having an influence, if you like, on the overall mix, not really it's -- the mix has sort of been consistent for for some time. I think the international business, as Maria said earlier, is certainly making good contributions, and we see a great growth opportunity there, but that's more over the medium and longer term than necessarily short-term influencing the revenue mix.

Yes. I think, Brian, if I may just add from a bookings perspective, the focus across the entire enterprise space inclusive of the large multinationals. So if you think of that global enterprise space kind of as large companies that are incredibly complex, that are driving large transformations Undoubtedly, the performance we saw specifically in the second quarter with respect to the enterprise space in International or Lyric and our global payroll offers were a larger contributor to the bookings narrative and perhaps in previous. But again, both of those spaces can be a bit lumpy. So to Peter's point, I think it's relatively consistent. We have high hopes and lots of investment and focus as we continue to uniquely put together global payroll, Global time, global HR and global service into a unique offer in the market.

Okay. That's helpful. And my follow-up on ES PPC. So can you just comment on the pickup here. I'm curious if that was broad-based or there were select contributors of that performance across certain client sizes. And as you just thought about the full year, still roughly a flat outlook. I know last quarter you said you're rounding down to 0 here, you're accounting up to 1. But just curious how you thought about the second half, just given that pickup of trend.

Yes, it's a good question, Brian. I think in terms of, like I was saying earlier, I think from an industry group contribution, very consistent also across the segments, our segments of the small market. small business market, the mid-market and the enterprise space. What we do not really see is what the wider economy is seeing, which is set out in the down market. Again, our base has tend to prove proved to be more resilient, if you like, I think, over the years with respect to hiring than the wider small business segment.

So it's really a pretty broad-based contribution, whether it's from industry groups, whether it's from the segment sizes. In terms of the outlook, we had quite a lot of discussion about it. It's not an easy 1 to predict because we're really talking about -- we're very confident, I think, that we will continue to see growth. It's a question of, is that growth just above or just below the 0.5% mark. So we decided not to adjust our guidance. I think we need to to see a little bit more, as I've sort of mentioned, we're talking about the tens of basis points above or 1 or 2 sort of below the 0.5 point mark. So it's very consistent. You can extrapolate, I think, sort of the the ADP NER and the BLS apply your usual sort of ADP factor to that, and that's exactly what we're seeing. So I think the back half, we'll see where it comes in and where it rounds to. But at the moment, it certainly looks very much like it's in and around what we have seen in the first and second quarters.

Our next question comes from Ramsey Elisa with Cantor Fitzgerald.

I wanted to follow-up on Tien-Tsin's question before on margin I mean, there seems to be a few more moving parts in terms of the flow-through in the second half. And given Q4 is typically a lower margin quarter for you guys. I just was wondering if you could speak to your confidence level about getting to where you need to get to deeper in the year? And just also whether there are any sort of underappreciated levers you might have access to to help things along.

Rami, yes, thanks for the question. I think it's really what I did say to Tien-Tsin, we delivered 80 basis points this quarter. We're not guiding sort of by quarters, obviously, but we're expecting sort of similar strong underlying margin contribution across the remaining 2 quarters. There is that dynamic on the short portfolio, which you can pretty easily, I think, extrapolate from our from our filings and our press release, we give the sort of the rates by quarter and the balances by -- between the portfolios in our press release.

So there is clearly about a 75 basis point reduction on the yield of that short portfolio in Q3 versus last year. The other 2 portfolios continue as they are. So -- and more importantly, I think the in terms of the true underlying margin expansion from revenue growth and diligent cost management. That continues and they also obviously continue, particularly cost management continues to be a lever for us. So I think we are -- we reiterated our range. We do that confidently in terms of our margin expansion range, and we don't necessarily anticipate any headwinds in the in the back half of the year, absent the sort of the dynamics I've already spoken about with respect to margin expansion.

Okay. Got it. And a quick follow-up for me. Could you comment on the pricing environment right now? How does it feel in terms of your ability to deploy pricing? And maybe what contribution are you expecting from that in your numbers?

Sure. No, I think the environment, again, is very consistent with what it has been. We feel similarly confident with respect to our ability to price. Our pricing across our 1.1 million clients, we don't just have a date in the year where we apply a price increase across the base.

It's feathered in. So we're halfway through the year already. I think our pricing has been very thoughtful as always and generally well received as these things go. And again, we're not expecting any anything to deviate from what we've said before, which is around 100 basis points of contribution from price in in fiscal '26, which is a little lower, not a huge amount of difference, but a little lower than what we had in fiscal '25 and a little higher than sort of what we were doing pre-pandemic, which was more in the 0.5 point range.

Our next question comes from Ashish Sabadra with RBC Capital Markets.

You talked about a lower revenue per client. I was just wondering if you have seen anything on that front in terms of the number of products that are opted by your clients?

Ashish, I apologize, we missed the first word, who spoke about a lower revenue per client? .

[indiscernible] that talked about a lower revenue per client. So I was wondering if you have seen anything on that front or in terms of like just the number of products that are adopted by your clients?

Yes. No, fair enough. I'm happy to comment on that with respect to, I believe the reference that they made was at point of sale, lower attach rates, perhaps is the way that we would think about it or a a lower number of employees. We haven't seen any of those trends. We monitor that closely, especially this time of year as we're looking at tremendous volumes, and we haven't seen anything that would lead us to believe that there's a lower revenue per client or per client employee, if you will.

No. And just to follow on to that, some of our strongest bookings performers have actually been our retirement and insurance services in that down market space. So if anything, I think we're perhaps seeing the reverse of what you're referring to. .

That's very helpful color. And maybe just another follow-up question on PEO. When we think about the bookings came in modestly below expectation? Are there any particular regions or verticals where you have seen any particular softness or in terms of, again, attach rate or employee penetration? Have you seen any color on those fronts?

I would say with respect to the strongest fit across the PEO markets, whether that's some of the states that have more concentration of PEOs, they continue to perform well in terms of those markets. But again, the performance is broad-based, if you will, across various industries. Certainly, the usual suspects of industries continue to fare well in terms of the strongest fits across PEO, whether that's the likes of property management, professional services, we kind of fit into that white collar end of the PEO, maybe perhaps slightly blue collars.

So I think all of that feels normal as it relates to the overall offer. I think the other piece that I heard a question in there and perhaps you weren't referring to it, but I'll take the moment just comment on it because it is such a big contributor to the value proposition of the PEO which is the health benefits piece and what are we seeing with respect to participation at the client employee level. And what I would tell you is participation across health insurance and health offers across our PEO are healthy and remain strong, which, to me, is a direct reflection of the strength of the value proposition of that offer in the market.

And congrats on strong momentum in employee services.

Our next question comes from Kartik Mehta with Northcoast Research.

Maybe just on PEO. In the last 12 months, have you seen a change in the type of client that is asking for PO in terms of are the clients larger or smaller or the type of industry? Any noticeable difference?

No, no noticeable difference. I think the momentum across what is our strongest fit, if you will. So the PEOs that we look -- or the PEO opportunities that we look to bring into our PEO remains really consistent. I think that's a big piece of the strength of ADP and ADP TotalSource and our offer is that we're incredibly guardrailed as well as strategic in terms of the clients that we target inside of the ADP base, who we want to be in that PEO.

And I would say that it's largely consistent across the last couple of decades, both with respect to size as well as respect to industry. Over time, we have pulled up a little bit in average size over the last couple of decades. Part of that is the PEO does have our best-in-class offer in the mid-market. So if you imagine the PEO sitting on Workforce Now, that stretches it into a little bit perhaps beyond just the small businesses. But again, that's relatively consistent over the decades we've been in the business.

And Peter, just a question on AI. I know you talked a little bit about AI and maybe impact of employment for your clients. I'm wondering for ADP, I think you've implemented AI. I think you've had success on the sales side. Just a 2-part question. Has that changed the number of people that may be salespeople you need or made them more productive, so changes and maybe the number of hires. And is the success of allowing you to increase investment or 1 leading you to increase investment in that?

Thanks for the question, Kartik. In terms of the headcount, no, we have not sort of taken a different approach to our headcount. We remain committed to growing sales head count we have seen over decades the contribution that, that can make. What it has done to your point is it's enabled our sellers to be more -- both more efficient and I think also more effective. I would still say we're in the relatively early innings in terms of taking dividends, if you like, from these investments and and really seeing sort of the lift we expect to get from this over the coming years. But it's less about, okay, a shift change in how we approach investing in the sales force or sort of where we expect sales to come from really it's a way that we are looking to make our salespeople more effective, more efficient and ultimately deliver more wins. But I think you should expect us to continue to invest in both head count and tools, be the AI and also other tools. We've spoken about the zone, which obviously is AI infused but it's also a platform our sellers use. All of those things, we will continue to invest in to maximize our opportunity to be successful on the sales front.

Our next question comes from Dan Jester with BMO Capital Markets.

So maybe on Lyric, it sounded like you sold a couple of quite large deals this quarter that you mentioned in the prepared remarks. Maybe can you share a little bit of color about how maybe you won those deals or how they came together. And as you think about the larger part of the opportunity in the enterprise for Lyric, do you have critical mass now in terms of reference customers? And are deals like this, should we be seeing more frequently? Or maybe just any more color about the upmarket momentum [indiscernible].

No. Thank you, Dan. I'm so glad you asked. This is 1 of my favorite stories coming out of Q2 is the strength that we see in [indiscernible] new business bookings, really excited about those 2 specific deals as they do represent 2 of the largest. Do we anticipate and want to see more of them? Of course, we do. That's everything that we've been building towards. So that is part of our goal and our expectation. I think the part that, again, also was a standout is that when you look across the pipeline, you look across the wins with Lyric, 70% of those are new logos. That's a direct correlation to how this product is resonating with CHROs, with the market at large. It's being cited, not just the awards we're winning but by the buyers. So how do these deals come together. They come together because CHROs today are looking for flexibility and their products.

They're looking for dynamic tools. They're looking for products that have AI built in the fabric and in the core, not after and attached. So it is an AI-centric human-centric platform that we built with really that worker at the center. That's unique. It's different. That's how these deals are coming together. That's how the pipeline is coming together.

So you probably hear it in my voice, but yes, we're very excited to see this, and we are building critical mass. Now again, I think Peter mentioned earlier on the international, same thing on these deals. These are large deals. They will take some time to onboard to get to huge revenue contribution, but definitely material bookings contribution from Lyric at this time.

Okay. That's great. And then -- maybe just to go back to your prepared remarks on the customer feedback, it sounds like extremely strong, some of the highest you've seen I guess I'd love you to compare and contrast that with sort of the retention commentary that it just kind of came in line with your expectations. So if your customers really love the product and retention is coming in line, about sort of what's impacting the market in terms of exogenous factors from the macro or the competitive environment sort of anything you'd share on retention [indiscernible]

Yes, sure. So I'll start with the client satisfaction because it's another highlight. It was a record quarter. It's a record first 6 months. I hope we always have a record because that means that the efforts that we have to improve the experience that our clients have engaging with us, the investments we're making in those tools Peter mentioned the zone.

That's true for sales. We're also investing tremendously into AI tools for our internal associates as well as into our products to make our clients more productive and our practitioners, whether it's ours or our clients in the HCM field, be able to navigate this space even better. So the investments into product, the investments into the tools I'd like to believe that NPS improvements that we continue to make. And by the way, they're broad-based. I think that's the other piece that stands out to me from a structural perspective. So really excited about that. And as mentioned, it is a direct connection to retention. We do have strength in retention.

That said, it was in line with our expectation, and that expectation is really how we set out the plan for the year. And Peter can comment on this as well. But we do anticipate this year a bit of a moderation. So it's hard to believe that it's 6 years later, and I'm still sitting here talking about pre-pandemic out of business rates. Are we back to fiscal '19 or not? And I would tell you, we're almost there, but we are planning for even in the back half of the year, a bit of moderation as it relates to things like out of business. We did see a tiny bit of that contribute to the slight decline, if you will, in in the second quarter. It's right in line with how we're planning, but it's not a byproduct necessarily of the tremendous efforts that we continue to make on client satisfaction and more a byproduct of how we really structured the plan for this. I don't know if you have anything to add to that, Peter.

Yes. No, I think that's well said. I mean the -- again, our reported retention rate last year [indiscernible] in the U.S. was 92.1%. So you can do the math, obviously, on a [indiscernible] plus business, but 10 to 30 basis points is actually a pretty small movement, if you like, that we are anticipating.

As we said, we -- our second quarter came in more or less where we were expecting. The first quarter was slightly better than what we were expecting. We'll see where the back half goes. It's more a back half story, particularly Q3 is the most definitive period. So I think we are we are just anticipating to your point a little bit maybe more on the macro side.

But again, very small margins, a very small uptick in as Maria said, or normalization of out of business levels in the small business segment. But all of this is very much on the margins, given we're only talking about 10 to 30 basis points against the very high retention rate to start with in a very large business.

Our next question comes from Bryan Keane with Citi.

Just had a follow-up on PEO, Peter, maybe you could help me understand the first quarter revenue ex pass-throughs grew at 6% this quarter at 3%. That's a pretty big move for bigger move than usual, we see between first and second quarter or just in the cadence of quarters is the 300 basis point delta there, maybe you could help us some of the drivers there. It sounds like maybe some of that is the softer bookings, but I didn't know if there's other things at play there.

Yes, Brian. So if you take the routing, it's actually a little less. We had some rounding up and down and what have you. But still, it is a bit of a differential. There's a few factors there, one is the slightly softer worksite employees we were talking about earlier, which came from -- again, from a solid but slightly below our expectations, bookings performance some moderation in pace per control. The second factor is, you may recall, Q2 last year, we had a bunch of pull forward in SUI revenues that we would not -- last year, we were anticipating in the third quarter, we pulled forward just due to the way the processing calendar worked into the second quarter.

We did not have that this year. So there was a bit of a grow over challenge or challenging compare, if you like, from a revenue growth perspective as a result of that. And then the third factor we saw was which, again, all going in the same direction, hence, the the differential that you're referring to was wage growth. We saw a little bit less wage growth in the PEO in the second quarter. Again, this happens from time to time. I wouldn't necessarily grow a trend that employers in that space are looking to put through lower wage increases. If anything, the third quarter is more a quarter where -- our third quarter being this current first calendar quarter is more when you see sort of wage rate changes, if you like, for worksite employees. But just due to movements in the base clients moving out, other clients moving in and the timing of that, we saw a little bit less in terms of the payroll base or the wage growth levels in the PEO. So a bit of a step off from Q1. I would acknowledge that. I think though we are still positive with respect to the outlook for the year, and that's why I reiterated if you like, by the fact we did not change our guidance either with or without 0 margin pass-throughs.

Yes, I was going to ask about the guidance. I think you did reiterate the 3% to 5% ex the pass-throughs. Should we be on the lower end of the range more just given the trends or not necessarily for the back half of the year?

Yes, I would say not necessarily, but we don't guide on the quarters, obviously, but there's a lot to be done again this we're in sort of prime selling season now. Retention is a little bit more of the fourth quarter, please. So much more of a back half story than front half. So it's hard to sort of give clear guidance, I guess, as to where in the range we think we will finish.

We are confident about being to land in the range. But I would say at the moment, the range is there because all possibilities still exist and will depend on largely bookings and pays per control and to some degree, retention.

Our next question comes from Dan Dolev with Mizuho.

Really nice results. I think Maria, you mentioned in the beginning, you're very proud of the cash flow Central partnership [indiscernible]. Can you maybe discuss a little bit of sort of the contribution, when should that become really material? And then I have a follow-up quick question.

Yes. Thanks, Dan. I appreciate the question. And the the nice comments about the quarter. I am really excited about our continued journey of the strategy of embedded offerings. So we've spent a lot of time talking about embedding run into other offerings. I think now I'm incredibly excited to talk about Fiserv's Cash flow Central being embedded into run. What this allows for is a small business owner to really leverage run powered by ADP as a one-stop shop platform where they have the ability to run payroll.

They have the ability to do bill-pay, APAR, they have the ability to pay contractors. They have the ability to pretty much pay everyone in 1 single platform. We believe in this ecosystem approach anytime you can come together with other technology to make it easier for a small business owner to navigate the work that they need to do is something that we're incredibly interested in and it's part and parcel to the embedded strategy, whether it's putting run into other ecosystems or leveraging other best-in-class offerings into our platforms. So really excited about it.

That said, though, we did just complete that integration in December. And so there's not a lot of contribution yet with respect to revenue and/or bookings. So that opportunity is largely in front of us, which also makes me incredibly excited as we continue down the journey of Embedded.

Great. And I do have like a little bit of a longer-term question. I think one of the key concerns, obviously, not ours, is sort of the long-term terminal value in sort of an AI-driven white collar job killing world, like software engineers, et cetera? Like I'm sure you guys are very -- I mean you've been around for decades. ADP has been around for decades. Like is there like -- are you guys working I'm sure internally about sort of the more like the 3- to 5-year outlook? How can ADP add value or how changing kind of the framework, if the AI thing does reduce long-term jobs? Just maybe some long-term comments would be great. .

Yes, absolutely. I'm happy to start. And then Peter, if you want to chime in kind of from a terminal value and things of that nature and things we may or may not be modeling. But I think maybe I'll start with the things that I think every day about, which is the -- some level like the beauty of this business, when I think about what it is that we do, which, as we've talked about at Investor Day, and we continue to see each and every day, what we do is not discretionary.

What we do is an imperative, paying people on time and accurately. It's not just a brand promise, it's candidly how the whole world goes around. So I think deeply about what does that look like in the future? You said it well, which is ADP has navigated many of these innovation cycles. We've been around for 76 years. If you think about how payroll was processed, 76 years ago to where it's processed today, a lot has changed. Work has changed, workflow has changed. I spent the last week over in the -- at the World Economic Forum. And as I walked up and down the promenade, this concept of AI changing workflow and augmenting the workplace as it automates tasks that is real, and that is happening, and we see that.

We see that in our business. We see that in our clients' business, but we also see that it has to be still anchored to, call it, human centricity, the world of work is a human place. What we do is probably the most emotional part of humanity, which is connecting people to their purpose connecting people to their work. By the way, the way to test that is if you ever want to really upset somebody, get their payroll wrong or get something with respect to benefits wrong. And so what we do will continue to evolve. And I think we're right there with it. That's why we're really excited about the work that we're doing across each of the domain disciplines of HCM with respect to AI.

I talked about it in the prepared remarks, having ADP assist agents and payroll in tax, in benefits and in all of these different areas will continue to change how work happens, whether that's for us or our practitioners. But at the end of it, -- the other thing I think a lot about, whether it's this last week during the snowstorm or perhaps the 23rd of December, when one of the largest global clients in the world had a challenge with payroll on their end.

Do I see a world where a bunch of humanoid are going to be sleeping in offices to get payroll done and navigating things to ensure that people get paid accurately and on time without people involved. Candidly, I can't see it. So I think workflow is changing. Yes, are we prepared to continue to innovate in that space. That is exactly what we're doing, but I also believe what we're doing and what many companies do outside of ADP is anchored in humans. And so only time will tell truly what the future holds, but we are navigating this innovation cycle at a rapid clip, no different than all the other ones that ADP has has navigated.

This concludes our question-and-answer portion for today. I'm pleased to hand the program over to Maria Black for closing remarks.

Well, funny enough, I think those probably serve as a pretty good closing remarks. I will only add 1 piece, which is exactly where I started, which is thanking our associates because it is our associates that are innovating. It is our associates that are showing up for our clients, whether that's at the holidays to get things done or it's weathering snowstorms to get things done. .

I'm really proud of the work that we're doing. It's a direct reflection of how we get recognized by companies like Fortune for 20 years in a row as a most admired companies. I am in all of the ADP spirits and how human the work that we do and how it shows up, and I'm really proud of that. And I just want to -- one can acknowledge our associates and thank everyone for their interest.

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

We're running about 8 minutes late right now, so we want to go right into the next one without -- trying to get back on track as best as we can. Thank you. Oh, they put up a chair faster than I expected.

So thank you very much to everybody for joining us today. I'm here at the Nasdaq Morgan Stanley Conference. Very pleased to have the senior management from ADP, Maria Black, CEO. Nice to see you.

Nice to see you.

And Peter Hadley, CFO.

So maybe I'll start, Maria, and we'll just kick things off really quickly and start at 30,000 feet. ADP, you guys hosted an Investor Day back in June. Can you highlight for the audience kind of the key messages from that event?

You bet. And happy to be here. Thank you again for having us. Great to be back in London, and great to be back at the Nasdaq Conference. So it seems like a lifetime ago but it was just June 12, we had the opportunity to host an Investor Day in Chelsea, New York at our innovation lab. It was a great opportunity for us to showcase the breadth and depth and strength of ADP.

So I'll frame it up kind of in three buckets. I think the first thing that we really emphasized is the scale and dependability of exactly who ADP is. So as you know, we are a company -- we're 76 years old, very proud of that. We've been through many economic cycles and innovation cycles. Our scale is broad and it is deep. We serve clients in human capital management from one employee all the way to the likes of companies that are processing a million paychecks on a given pay date and also across the world. So we serve 140 countries.

So we've been through a lot as we've navigated the world of work and really set in motion this industry. And the scale that, that affords, the ability to lean into that in this type of a time and also certainly weather a lot of innovation cycles, economic cycles is certainly a strength of ADPs. So we were highlighting the scale of who we are. We were also highlighting the scale of the market opportunity, $180 billion of TAM that we are chasing. And with $20 billion or so, which was our reported number last year at the end of the fiscal year, we see a tremendous runway still ahead of us in this incredibly dynamic shifting world of work. So that was kind of the first piece that we emphasized.

I think the second piece was appropriate given we were in our innovation lab in Chelsea, New York. We do have labs all across the world that are building our products and innovating and building our next-gen solutions and offers. And so we had a chance to showcase a lot of this, emphasizing certainly the best-in-class platforms we do have across the entire breadth that I just shared in terms of from the very small businesses to the mid-market, to the beyond payroll offers of HR outsourcing to, ultimately, the enterprise space and then the complex global multinational space.

So we have new offers and new platforms in each one of these areas. And we had a chance to share that with our analysts and our investors at our innovation lab that actually helped build a lot of this. So I think the vibe of innovation was all around us, and we were really proud to share the journey we've been on. Meaningful steps we took last year. We launched ADP Lyric as an offer. We also have expanded the reach of our Workforce Now and Next Gen. And again, these are meaningful steps for us in our innovation journey.

I think the last piece I'll comment on because it's how it all comes together in terms of being able to chase this incredible $180 billion TAM with these best-in-class innovative products, it really comes down to distribution. So we had a chance to share a lot of the work that we've been doing specifically in the ecosystem of distribution. So again, because we're meeting all sorts of clients across many of these various places and segments, the key is being able to, at every single turn, have a modern sales force meeting a modern buyer with modern leadership. We make tremendous investments into our distribution. That's inclusive of that organization, which is 8,500 sellers that meet our clients.

But it's also about the ecosystem around them. We distribute through channels in the down market. That looks like CPAs, banks, ecosystems through embedded payroll. In the mid-market, we're meeting clients with brokers and some system integrators that takes us into the enterprise space. All of those things are how we invest into our distribution, inclusive of a best-in-class tech stack. So we had a chance to showcase the innovative work we've done and what we call the Zone, which is where our seller athletes show up to live in the Zone and execute the great opportunity that we have at hand and the market that we represent as the leader with these best-in-class products that we've been innovating for many, many decades.

And we're very proud to share all of that. I could go on and on, but I know we're a bit behind and short for time. So I'll stop there. But it was a tremendous day, one of my highlights as CEO over the last 3 years.

Yes, for sure. And I think from the investment community perspective, there was a lot that was definitely eye-opening from that day and some of the things that I want to dig into from that as well as things that have transpired since that time.

A few things, and we'll hit on some key ones, but one thing I know that has been top of mind for investors is just from a macro perspective. And ADP is now sharing its latest data on the employment market through its new NER Pulse publication. Can you talk about what you're seeing in the labor market today and maybe what your expectations are? And how concerned are you that AI may be reducing overall employment levels?

Sure. It is topic du jour. We spent some time in Germany last week, Scotland earlier as well as obviously been doing a lot of meetings, and it seems to be the question of the entire market, that is our investors. And so I think it's an appropriate discussion.

And maybe perhaps I can start and comment on the work that we are doing with respect to the ADP Research and the National Employment Report that we do monthly, coupled now with this new national employment pulse. And maybe, Peter, you can talk about what we're seeing inside of our base because while they're similar in that structurally the data starting point is from the same information, which is ADP's 42 million wage earners that we pay across the world, the data is really based upon these 26 million wage earners in the U.S. and the subset in there of 14 million wage earners that we have an ability to track, call it, over time even as they jump around from job to job because we pay 1/6 wage earners.

So that's kind of the foundation and starting point. Peter will speak to what we see in our base. But with respect to the research that we put out to the world of work through the ADP Research Group in partnership with Stanford Institute, it is about giving the world of work and employers, bankers, the capital markets, the government the information that we believe belongs to the world in terms of what is happening. And that 26 million wage earners, Stanford Institute kind of takes that and extrapolates that out to represent the broader market to really get this understanding of what's happening.

Last week was the week of the monthly report. So it did suggest that there was a minus 32,000 jobs. It's a very complex environment. That's why everyone is asking this question. You really have to double click, triple click, look underneath that to see what's happening. And what's neat about the monthly report is it does just that. So for those of you that are interested, I'd highly encourage you to go on to the site and look. And what you'd see is there are some implications. And the down market seems to be moderating a bit, small business on the macro side seems to be moderating a bit, wages are actually holding strong. So while I think there was 10 bps movement in wage growth, it's still really elevated. So you have to kind of look underneath sectors and industries. There seems to be some pressure in leisure and hospitality.

Again, the question is, is that AI? Or is that potentially just mean reversion of growth that's happened before? And that is the question, how much of this is potentially disintermediated. Stanford has done some research using some of our data. And I think they've seen some early, early indications of certain age cohorts and potentially certain jobs, think customer service, software development, where there might seem to be some early signs with respect to AI.

What I would suggest to you is it's still very much early days. And when we look at across broadly speaking, is it really about AI and, call it, the disintermediation of roles and jobs? Or is it that coupled with other things that are still washing through such as the mean reversion post the great resignation and the great stay. And I think while that's the macro story that we contribute to, and now we're even producing a National Employment Report Pulse, the NER Pulse weekly, it comes out today so that all of you can follow along in the arc of employment. So if things were to start to broadly change, I think we'd be the first to start seeing it.

But as it relates to ADP specifically, our results and our base and the measure that we utilize called pays per control, which is our same-store measure, maybe, Peter, you can comment on what we're kind of seeing at ADP.

Yes, absolutely. Thank you, Maria. Within our base, so our base is the starting point, if you like, as Maria alluded to, for the National Employment Report. But there is much extrapolation that our economists and the Stanford economists do on that in order to get to that macro view. What we see in our base, and we've seen this over many years, not a recent phenomenon, is our base tends to be more resilient with respect to maintaining and growing employment levels than what you see in the wider numbers, whether they're from the ADP Research Institute or the BLS or whoever.

So what we're seeing at the moment is actually, conversely to maybe some of the headlines, is sort of multiyear lows in terms of layoffs of workers within our client base. We're also seeing relatively muted but still growing employment. So we adjusted our guidance to the lower end of our range being about flat. But certainly, we're in a position where we're rounding down, if you like, to that 0 same-store metric type organic employment growth on our clients' books.

And you may wonder, okay, why has the base performed a little differently to the macro economy? Because as Maria said, we do have 26 million workers, 1 in 6 U.S. paid workers paid by ADP. I think it's due particularly probably in the down market in the small business segment. Companies who invest in our solutions, our services, be it payroll, be it time and attendance, HR, workers' comp, medical benefits, retirement planning solutions, and this is more an anecdotal comment, but I think proved to be more resilient than the line average of companies that may start up. And they may start up, see how they do for 3 months, 6 months, 9 months and perhaps either don't continue or adjust their expectations before they make the type of investments that we're talking about.

So we do typically see -- and I think it's important when you're looking at ADP against the macro data to understand a little bit, I think, that bridge. We continue to expect a fairly stable environment in terms of relatively low hiring compared to previous years, also relatively low layoffs at least for the time being and, as Maria was saying, continued resilient wage growth, which is important for us. It's a driver of both our client fund interest revenue as well as our PEO revenue, which we bill on a percentage of payroll basis.

Got it. So that's a little bit of the macro commentary. I want to take that to talk for a minute about some of the specific objectives that you've set for the business for this year. And let's start on HCM, human capital management. Can you comment a little bit on the state of demand in HCM across your various business segments? And love to hear what kind of is inspiring the confidence in the ability that you're targeting to deliver on the 4% to 7% ES new bookings growth outlook for this year.

Sure. Happy to comment on demand. So I think broadly speaking, demand feels stable. The pipelines feel healthy. When I speak to pipelines, it does kind of vary with respect to small business all the way to enterprise. And the small business, it's less about pipelines, it's more about activity, number of appointments, the general energy that's happening in the marketplace. And I think that feels largely stable with respect to what we've seen over the last year. It doesn't feel like anything's changed.

And certainly in the mid-market and upmarket, you get into being able to actually watch pipelines. And again, pipelines are healthy, I'd argue that perhaps year-on-year healthier. I think, overall, it feels like a very stable situation on the demand front.

So what gives us that confidence to accelerate to 4% to 7% guidance that we have for bookings this year, some of it is, broadly speaking, demand feels solid, pipelines feel healthy. What I would offer to you is we feel really confident in our innovation journey and the products that we have and how they're resonating in the marketplace. I spoke to some of them earlier, these best-in-class platforms.

We had an incredible launch of our Lyric products, but we also had the Workforce Software acquisition last year that's now being married to our Lyric offer. And as we take that reach and extend it into our global space, we have this ability to have global payroll, global time, global HR and global service. That's unique to ADP. That's a competitive, differentiated offer that we feel really confident in.

And so if you think about all of that -- by the way, we haven't even talked about overarching AI as we're infusing AI into each one of these best-in-class offerings. And so we feel great about our products. We feel great about our distribution. I spoke to that already. We have an incredible sales force and ecosystem that is excited to overall execute on this opportunity at hand. And I think last but not least, we did see acceleration in the first quarter.

And so I think all of those things kind of married together in a, broadly speaking, solid environment with healthy pipelines, an incredible product offering, the best HCM distribution that exists and the momentum of seeing some acceleration in the first quarter, I think, broadly speaking, we feel very confident in our ability to get to that 4% to 7% target.

Got it. So let's also talk about PEO. It's another area where you're looking for at least a medium-term acceleration. And you've set an objective there of 6% to 8%, which is a little bit above the 5% to 7% you're looking at for fiscal year '26.

Can you talk about why PEO growth, you're expecting it to be a bit slower this year and how you're thinking about accelerating that over the next few years? And I guess, is your PEO experiencing any impact from the continued rapid increase in health care costs?

Yes. Do you want to take the first part? And I'm happy to talk about insurance.

Yes, I think in terms of the current year guide, I mean, I think for the most part, we're well and truly still within the medium-term guide. I think the employment outlook is obviously a little bit more uncertainty over a period of 12 months than our sort of status quo type assumption on our midterm financial objectives range. But we reported 7% growth in the PEO for the first quarter revenues. I think the employment situation stands up well.

The PEO, for those who are not familiar, also is a little bit narrow in terms of industry verticals that we cover in the PEO than what we do in Employer Services, tends to perform and is performing a little better from a same-store employment growth metric perspective than what Employer Services is. So we'll see where the rest of the year takes us. The PEO is very much a back end of the fiscal year type seasonality to it in terms of both bookings and retention. So I think we have some time to go, but we're feeling good about the revenue profile of the PEO.

In terms of any impact that we see from the health care environment, of course, right? It's a tricky time in the United States. It has been for a long time as we navigate health insurance and the implications, specifically to the workers but, moreover, to the employers as they are the ones that effectuate the offer of health care to their employees. We've been for decades now solving this for the target market of the PEO.

So those small to medium-sized businesses that are trying to navigate all of this complexity, the PEO is an incredible offer to help them do just that and, through the PEO, the ability to offer the Fortune 500 style of benefits in terms of number of plans, offers and multi-states and things that are very difficult for a small business to go and get on their own, they're able to get that through a PEO.

The way that we go about that is a bit unique in our industry, specifically as it relates to health insurance. We are in a fully insured environment. So what that means is we will feel all of these things as it relates to the health care inflation, as will our clients. But it will all be done in a fully insured model, which is a little bit more guardrail-ed to the ups and downs of this environment. That's not to suggest that we're immune. I think for us, where it shows up is more impact potentially on bookings and retention than it is necessarily on margin for those that have a different construct.

So we feel really solid about the way that we've been executing in kind of these times. They're not new times. It's been a difficult market in the U.S. for quite some time, but specifically the last 2 years on the heels of the pandemic as I think everybody made up for lost time with respect to health insurance type of services. And as such, it's been difficult health care inflations year-on-year. Our team has executed very well against that as it relates to both on the bookings side and the growth side of things as well as on retention side.

So we feel these things. I think we feel them indirectly. And through the great services that we offer, we help our clients navigate it. And oftentimes, that's inclusive of guiding them toward a place where whatever this increase may be, can be consumed and affordable to that employer.

Got it. So those were a couple of areas where we've had investors express questions just like, hey, what's behind the expectation for driving acceleration?

On the other hand, I want to touch on retention because this is an area where you've continually outperformed. There had been some expectation for normalization post-COVID. But to the extent we don't see an uptick in SMB bankruptcies, which has kind of been the underlying assumption, could that retention outlook proved to be conservative again for you?

Yes. And you used the word again. I think it's an appropriate word. It's proved to be conservative the last couple of years. We've outperformed. I think post pandemic, we're still not all the way normalized. We're almost normalized to where we were with out of business and bankruptcies pre-pandemic. But we're still not all the way normalized, which sometimes you wonder if perhaps the improvements are just structural. And I think that's the magical question.

But I think for us, as we think about kind of the outlook, we believe in our retention guide. We did see some moderation in the first quarter, specifically in SMB. We did still outperform our expectations from a retention. And so our goal is, of course, to continue to lean into all of the things that create retention upticks, which comes back to product innovation, innovations into making it easier for our clients to do business with us.

We are laser-focused on their experience. We do the measure of Net Promoter Score and so we're constantly talking about these record NPS results. We saw another record for a first quarter this past quarter. And the reason that this is so significant is it comes back to making these improvements structural. And so Net Promoter Score is a direct corollary to retention. And so as we think about the outlook, we believe the outlook is prudent. But at the same time, every effort on our end is to continue to structurally make improvements so that, ultimately, we outperform.

I would just -- sorry, just to quickly add to that. Our third fiscal quarter or the first calendar quarter of the year is sort of the biggest period for switching. So I think we'll see where we get through the next quarter in terms of the guide. But as Maria said, I think we believe in the retention guide at this point.

Got it. And here in the last few minutes, to wrap up, I want to go back to kind of where we started in the Investor Day back in June. In those presentations, it sounded like you've seen some pretty good adoption of some of your AI features in your products.

How are you planning to monetize your AI investments? And when should we anticipate showing AI-driven productivity gains, margin expansion, increased revenue? Like what should we be tracking as investors?

Yes. So I'll quickly comment because I know we're up on time here, and I'll let Peter talk about the monetization. We're really pleased. So we're sitting here 3-odd some years after kind of ChatGPT came about and really consumed every discussion and platform and strategic agenda. And so as we've infused AI into our product development, into our products, into our service implementation, into our go-to-market motion, that is what we showcased at Investor Day as we're consuming it in and absorbing it into, candidly, the fabric of who ADP is and everything that we do.

And we're really excited about the meaningful impact that we're making in our clients' workflow journeys, into their experience, into our go-to-market motion and productivity, which then begs the most important question which is, when will the returns come?

Well, I think the returns are already coming. I mean, in terms of monetization, there's sort of two ways to think about it. There is potentially add-on services or increased functionality that could result in an incremental revenue stream or a new line item on the invoice.

But I think, more predominantly, what we're doing, at least what we're working on at the moment is removing friction from existing elements of the process, services we've been providing to clients for many, many years. So the way I think about that is more about value-based pricing as opposed to, okay, now we're going to charge a little more because we have a better, more efficient process driven by AI, for example, to help resolve anomalies that come up in payroll processes than the previous sort of tools and services we used to use pre-AI in order to essentially surface the same thing.

So there is definitely value creation there because there is less investigative work that the practitioner needs to do in order to solve challenges. How we monetize that, I think we take a long-term view and certainly make sure we don't get out ahead of ourselves and over our skis on price increases. But to try to price for the value that we are creating, helps us retain our clients for longer, gives us the ability to sell more services to them over time. So it's a bit of a two-pronged approach.

Well, that's great. Maria, Peter, thank you so much for joining us today.

Thank you. Great to be here. Thank you very much.

Thank you, James. Thank you.

Appreciate it.

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 First Quarter 2026 Earnings Call. I would like to inform you that this conference is being recorded. [Operator Instructions]

I will now turn the conference over to Matt Keating, Vice President, Investor Relations. Please go ahead.

Thank you, Michelle, and welcome everyone to ADP's First 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 financial 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 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, and thank you, everyone, for joining us. This morning, we reported solid first quarter results that included 7% revenue growth and 7% adjusted EPS growth. We achieved these financial results while also making meaningful progress across our strategic priorities. I will briefly review some additional highlights from our results before discussing our strategic progress. .

We delivered solid Employer Services new business bookings with growth accelerating from our fourth quarter last year, resulting in a record sales volume for our first quarter. Growth was healthy in our small business portfolio, which includes our retirement and insurance services businesses. We were also happy to see growth reaccelerate in our Employer Services HR Outsourcing Business after a softer finish to last year. Overall, HCM demand remained relatively stable, and we experienced specific strength in ADP Lyric HCM.

Our Employer Services retention rate continued to exceed our expectations and only declined slightly. Our overall client satisfaction score reached a new all-time high for a first quarter, reflecting improvements in each of our business units. Employer Services pays per control growth continued to moderate and rounded down to 0% for the first quarter with clients remaining cautious around adding head count in the current environment.

And last, our PEO revenue growth of 7% exceeded our expectations, helped by growth in 0-margin pass-throughs and higher wages. We are proud of our first quarter financial results and excited by the progress made across our 3 strategic business priorities. I will start with what we are doing to lead with best-in-class HCM technology. In the small business space, we continue to scale our embedded payroll solution. Embedded payroll saves small business owners time by bringing payroll directly into the software platforms they are already using to run their businesses. We are pleased with our early embedded payroll sales collaboration and look forward to adding more partners over time to further extend the reach of our small business distribution network.

We also continue to add functionality to our existing small business offerings. For example, earlier this month, we launched a benefits recommendation tool designed to help guide small business clients on the most suitable benefits options. Today, these recommendations cover group health and individual coverage health reimbursement arrangement or ICRA, and they will expand in the future to include our PEO.

Our insurance services business also recently launched a digital option that enables small businesses to purchase ICRA plans directly on our run platform through our partner, Sach. This opens up more choice for employees by allowing every team member to pick the plan that is right for them, health, dental, vision, all in one place. In the mid-market, we accelerated the deployment of Workforce Now NextGen. We reached an important milestone in the first quarter with more than 80% of our new mid-market clients in the 50 to 150 employee space were sold on this next-gen version of Workforce Now.

Moving forward, we will continue to extend the solution to larger mid-market prospects to enable them to also benefit from its modern tech stack and enhanced functionality. In the enterprise space, ADP Lyric HCM continues to experience strong momentum. Lyric's new business bookings exceeded our expectations for the first quarter and its new business pipeline continues to grow. Among the many enterprise clients that started on Lyric during the first quarter was a large travel management company. This client selected Lyric for its AI-driven automation and flexible architecture. They are using ADP for payroll HR time, benefits and talent in both the U.S. and Canada.

Highlighting its positive reception in the market, Lyric was recently recognized by HR executive as a top HR product of 2025 and honored at the HR Tech Conference in September. With respect to our Workforce software acquisition, we continue to make meaningful progress. By unifying workforce management, HR and payroll, we help our clients to gain better visibility, simplify their operations and lower overall costs. Our differentiated approach helped us win the time and attendance business of an existing payroll client in the student transportation business with thousands of employees.

And just this morning, we announced the acquisition of Pequity, an innovative compensation management software provider. This acquisition will broaden ADP's capabilities to support the complex compensation planning needs of our clients who are looking for insight-driven compensation solutions that help them make informed pay decisions. Underscoring our commitment to leading with best-in-class HCM technology, we also continue to advance our AI initiatives. We deliver purpose-built AI to solve real-world problems for HR teams. Our latest enhancements to ADP Assist use the power of generative AI to analyze and resolve things like payroll anomalies by automatically identifying inconsistencies or deviations in the data, analytics requests that can take days to fulfill and routine compliance tasks, which pull teams away from strategic work.

Utilization of ADP Assist is also increasing with more than 5.5 million client conversations over the last year. This helps reduce the need for clients to contact us as their questions are answered proactively within our products. As we look ahead, our vision for ADP Assist includes simple agents to handle everyday tasks advanced agents to execute multistep processes, autonomous agents to go further managing workflows from start to finish, being sure to keep humans in the loop where it matters.

What makes our approach different from others is the scale of the data we use to power our agents and how we train them to work together. A single action sets off the right follow-ups for employees, managers and HR practitioners. It is in these connections where the real value is produced. We have an opportunity to use AI, not just to speed up the client workflows, but rather fundamentally shift how work gets done. It's the difference between using AI to do things better and faster than before and using AI to do things better and faster than anyone else.

Our new AI capabilities empower our associates to deliver on our second strategic priority, providing clients with unmatched expertise and outsourcing solutions. These internal AI tools provide our sales, implementation and service teams with client-specific insights to address market shifts, resolve unique challenges and ultimately deepen client engagement. Additionally, all of our developers are now equipped with coding copilot tools that are leading to measurable productivity gains. We also continue to expand our use of digital implementation for both small business and PEO clients. These AI initiatives create additional time for our associates to engage in higher value-added activities that support our clients' growth.

Finally, we continue to execute on our third strategic priority benefiting our clients with our global scale. We bring value to our clients through our unmatched footprint in over 140 countries and continue to add to our global capabilities. During the first quarter, we also went live with our first global view client in Costa Rica, where we now serve 1 of the world's largest employers. Further underscoring the quality of our global products, ADP was recently positioned as a leader in multi-country payroll by Nelson Hall in its payroll reimagined 2025 meet and as an overall leader in multi-country payroll solutions by Everest in its 2025 peak matrix.

We remain confident in our ability to advance our strategic goals drive our competitive differentiation and deliver strong financial results. And with that, I would like to take a moment to recognize our associates whose efforts and outstanding performance help us consistently deliver for our clients and maintain our record high client satisfaction levels.

Thank you all. And now I'll turn the call over to Peter.

Thank you, Maria, and good morning, everyone. I will start by providing some more color on our first quarter results and then update our fiscal 2026 outlook.

Let me begin with our Employer Services results and outlook. ES segment revenue increased 7% on a reported basis and 5% on an organic constant currency basis in the first quarter. As Maria shared, ES new business bookings were solid to start the year with a relatively stable demand drop and continued healthy pipelines, we are maintaining our 4% to 7% full year growth guidance. ES retention declined slightly in Q1 versus the prior year, but still came in better than we anticipated. We are continuing to forecast a 10 to 30 basis point decline in full year retention. ES pays per control growth rounded down to 0% for the first quarter coming in slightly below our expectations. We are now forecasting pays per control to remain about flat for the full year.

Client funds interest revenue increased more than we anticipated in Q1, helped by stronger average client funds balance growth. While the yield curve has declined marginally since our last update, this impact is more than offset by our stronger client funds balance growth. We are now forecasting average client funds balances to grow 3% to 4% in fiscal '26, and we are continuing to expect an average yield of approximately 3.4%. Accordingly, we are increasing our full year forecast for client funds interest revenue by $10 million to a range of $1.30 billion to $1.32 billion. We are also increasing our expected net impact from our extended investment strategy by $10 million to a range of $1.26 billion to $1.28 billion.

Overall, we are maintaining our full year ES revenue growth forecast of 5% to 6%. Our ES margin decreased 50 basis points in Q1, reflecting integration and acquisition-related costs associated with the Workforce Software acquisition, which closed last October.

Moving on to the PEO. Revenue growth of 7% represented a solid start to the year with average worksite employee growth of 2% in the quarter. We saw continued growth in PEO new business bookings. However, PEO pays per control growth moderated in the quarter. As a result, we are continuing to expect fiscal 2026 PEO revenue growth of 5% to 7% and average worksite employee growth of 2% to 3%. PEO margin decreased 140 basis points in Q1, mainly driven by higher selling expenses, the timing of state unemployment insurance costs, 0 margin pass-through revenue growth and some onetime costs connected with the retroactive change in the deadline for filing certain employee retention tax credit claims.

Putting it all together, we are maintaining our fiscal 2026 consolidated revenue outlook for 5% to 6% growth and our forecast for adjusted EBIT margin expansion of 50 to 70 basis points. We continue to expect our effective tax rate to be around 23% for the year. We also continue to forecast fiscal 2026 adjusted EPS growth of 8% to 10%, supported by share repurchases.

I would also like to add a quick reminder of how we reflect the impact of our client funds investment strategy in our segment reporting. The results of our client funds interest revenue are reflected in our Employer Services segment. while corporate extended interest income, which represents the interest generated from the portfolio on the days that we borrow as well as the related short-term financing costs are both recorded in our other segment. Accordingly, from a segment geography perspective, some of the benefit we expect to receive from our overall client funds investment strategy in fiscal 2026 is recorded in our Employer Services segment, while the balance of this overall benefit is recorded in our other segment. This dynamic played out in our first quarter, and we expect it to continue throughout the rest of our fiscal year.

Thank you, and I'll now turn it back to the operator for Q&A.

[Operator Instructions] Our first question comes from Samad Samana with Jefferies.

Maria, I'll start with you. It sounds like the booking side is going well, both in Employer Services and PEO. And I thought it would be helpful if maybe you can update us on what the backdrop looks like in terms of deal cycles just looks like? And then how are you thinking about just time to close? And if there's been any change in what you're seeing in deal time lines, particularly with larger customers? And then I have one follow-up for Peter.

Sure. Samad, and thank you for the question. So overall, we feel okay about the HCM demand backdrop. I think we referred to it as relatively stable, and that's exactly what I would suggest that it is it really doesn't feel like a lot has changed as it relates to the dynamic of the demand backdrop. We called out a bit of pipeline aging throughout fiscal '25. We saw that kind of continue into Q1. So we're really back to kind of those pre-pandemic. I used to call it, I suppose the new normal or the old normal. I think it's just kind of normal.

So I think it felt largely the same as it did as we finished up the year. in terms of really across the board, whether it's in the down market, where we're measuring things like new appointments or it's an upmarket that you asked about Samad with respect to deal cycles, I would say we haven't observed any meaningful changes in Q1.

Great. And then, Peter, as I think about the guidance, and I appreciate the color on the individual pieces and how you tend to maintaining it, and I know it's still early in the fiscal year, but particularly on Employer Services, if I think about some of the underlying pieces, it feels like there is a little bit of a downtick, whether that's pays per control, whether that's retention. So how do you get confidence in the range and maybe just as we think about shorter term into the next fiscal quarter, how should we think about maybe where that should track and if there's any onetime things, I think maybe there is 1 less processing day last fiscal -- last year this time last year. So just maybe help us think of the guidance.

Yes. Sure, Samad. So I think there are a number of things. None of them are individually particularly significant, they're going in different directions. So as you pointed out, we have lowered our pays per control guidance to the lower end of that range. So again, we're talking about 10s of basis points of movement there. There's obviously some revenue and margin attached to that. Conversely, we have a relatively small uplift in our client fund interest revenue driven by the balances. Again, that's sort of a counteract. We also have a little bit of favorability on FX and sort of 1 or 2 other things. So like I definitely feel very confident, I think, with respect to the guidance we have shared there.

In terms of the quarterly cadence, we actually had 1 extra processing day in Q2 last year. We also had some SUI revenue in the PEO pulled into Q2 last year. So we have to grow over that in the second quarter. There may be not a material difference, I would say, absent the anniversary of the Workforce Software acquisition at the end of this quarter. So when you take that out and go back to sort of an organic constant currency type level, not a material difference, maybe a slight downtick in the revenue growth rate for the quarter, just growing over that extra processing day in the ES and a little bit of that SUI revenue pull forward that we're -- at this point, we're not anticipating in Q2.

But in terms of the full year and in terms of employer services, I think the movements are relatively small and somewhat offsetting each other. So again, we feel just as comfortable with the ranges what we were 3 months ago when we issued our initial guidance.

Our next question comes from Mark Marcon with Baird.

And congratulations on the -- on what sounds like pretty good start from a sales perspective. Maria, you went through a number of different areas on -- in terms of new bookings. What area was the most surprising from your perspective? And in addition to that, can you just describe a little bit more about what you're doing on the embedded side like how widespread is that on the lower end of the market in terms of percentage of sales? And does that have any impact with regards to the economics of the business?

Yes. Thank you. And thank you, Mark, as always, for the congrats on the good start. And we feel exactly that way. So I wouldn't say it surprised us, but it certainly pleased us to see that growth did accelerate in the first quarter. And I called out some of the highlights within our small business space. We saw specific highlights within retirement services, insurance. We were really pleased to see that the Employer Services HR Outsourcing business, as we talked a lot about last quarter, a lot of those big complex deals that have big transformations. We are excited to see those cross the finish line. and certainly continue to build the pipeline there.

And then we were pleased also to see the continued interest and demand for Lyric HCM. So I wouldn't say that it surprised us. I think it pleases us to see the quarter kind of evolved that way. That said though, as everybody knows, we still have the bulk of the year ahead of us as it relates to execution kind of broadly across each one of those areas.

To speak to embedded payroll specifically, it is still very much early days. I think you know we're very committed to our partnership that we have specifically with Pfizer. We're also really excited about continuing to make progress on the embedded offering in general and other partnerships. So it is a big piece of our growth agenda and growth strategy within the down market. That said though, we just rolled out the opportunity across the back book, if you will, of our partner just in October. So the bulk of, call it, the bookings contribution from Embedded is really ahead of us. It really doesn't contribute thus far in the numbers through the first quarter.

And so we're excited about the sales collaboration and the progress we've made to integrate and scale the offering. We're also really excited to put cash flow central inside of the run offer towards the tail end of this year, if you will. So again, definitely a part of the strategic agenda hasn't really contributed much to the sales results thus far. The bulk of that contribution is ahead of us.

Great. And then for a follow-up, just you mentioned in terms of majors NextGen basically comprising 80% of the new sales in the core area within majors. Can you talk a little bit about what you're seeing in terms of the utilization of NextGen with the clients? To what extent is the client satisfaction rate going up what does that make you feel from a retention perspective as that continues? And any sort of impact from a profitability perspective?

Yes, great question, and it is exciting. It's incredibly exciting to finally see the NextGen making progress at the levels that we reflected. So 80% across that core space of the mid-market. Obviously, our goal is to extend the reach throughout this fiscal year to broadly cover the mid-market. And part of that excitement is anchored entirely in what you just suggested, which is that we are seeing faster time to implementation. We are seeing better implementation satisfaction. We are seeing upticks in overall satisfaction.

So as the mid-market has been making these investments into the products and the platforms and we've been able to simplify really the experience for the clients but also that experience our associates to service our clients. whether that's why they're onboarding them or while they are servicing them, it's definitely making an impact, and that's exactly the journey we've been on, and it's greatly contributed over time as NextGen has been scaling in the mid-market, who those record-level NPS results that we've been talking about in the mid-market. And certainly, we've talked a lot about the mid-market retention over the last few years. And we're confident that the product investments we're making, specifically NextGen are driving a sustainable improvement in client satisfaction broadly across the mid-market.

And I think just on the profitability piece, Mark, at the end there, we're also anticipating that this will lift our productivity. Certainly, we observed, as Maria said, not just more smooth implementations, but easier implementations, the ability for more digital onboarding as well as the number of client contacts for next-gen clients is meaningfully lower than on the current gen solutions. So certainly, a profitability opportunity there as we roll it out further across the mid-market base. .

Our next question comes from Jason Kupferberg with Wells Fargo Securities.

This is Kathy Chan on for Jason. Just a quick question from me and maybe a follow-up. So I mean, obviously, you guys talked about U.S. GPC coming in flat for the quarter, maybe a little bit below expectations. -- and now you guys are expecting the full year guide to be flat. I guess just diving a little bit deeper, what drove that weakness? And what gives you guys confidence that it won't maybe even decelerate or be down through F '26?

Yes, I'll take that one. So I think we're talking about relatively small movements here, tens of basis points of movement. We were at a 0 to 1 range. We're just really guiding now to the lower end of that range. So it's not a -- I would say it's not a huge shift. Where we draw our guide from our projection from and our confidence, I guess, is just with our own data. I mean, we -- obviously, we look at a lot of external reports. We have our own national employment report on this sort of stuff. But really, we're looking at the hiring in our own base the patterns that we see.

And I think we feel confident that just given the magnitudes involved that, that is the right guide for now and in terms of revenues and margins, again, not a meaningfully different sort of point from our initial guide, albeit the rounding, obviously has moved to the low end of the range from call it the midpoint, which I think in the previous earnings call, I think we did suggest that at that point, the midpoint felt more likely. Now we have moved a number of call it, tens of basis points more towards the lower end of that range.

We also said in the prepared remarks that we're rounding down to 0% at this point. And we expect that likely will continue through the balance of the fiscal year unless things change meaningfully in the macro environment.

Okay. That's helpful. And then just on margins. I think you guys did around flat margins for the quarter and then you're maintaining the 50 to 70 basis points expansion for the full year. I guess, how are you expecting the rest of the year to shape up in terms of expenses and the margin dynamic there just so we have that model correctly.

Yes, sure. So we're actually quite happy not that we're shooting for a flat, but we were quite happy with sort of beat our expectations. We alluded to the fact we're expecting some margin decline, mostly due to the fourth quarter of the Workforce Software acquisitions, so the acquisition-related expenses, some integration costs there. So we actually felt -- we actually ended up a little better than what we expected in the first quarter. That certainly helps. That anniversaries actually anniversaried about 2 weeks ago. So that drag is element is behind us. .

The rest of the year, we feel pretty good about where the range is. We have a little bit of ramp in the second part of the year, which we are contemplating. And again, some of that is due to some efficiencies that we're driving in the business, some of the effects of some of our GenAI investments, but you should expect us to -- again, when you adjust for the Workforce Software acquisition in the first quarter to see something similar in terms of the net result in the second quarter and then a little bit of a ramp in the back half of the year.

Our next question comes from Kartik Mehta with Northcoast Research.

Yes. Peter, I wanted to start off with you. I think when you originally gave guidance for you yet, at least for FY '26, we anticipated that pricing would be about 100 basis point benefit, a little bit lower than what it had been a little bit after COVID, little bit higher than pre-COVID. And I'm wondering if your expectations are still the same, considering the environment has changed a little bit, at least economic environment.

Yes, absolutely. No change at all actually in our price expectations. We've not seen anything in the first quarter that makes us feel like that needs to change. We do expect, as you said, Kartik, we're going to come in a little lower than where we were last year on price. Again, our philosophy has not changed in terms of sort of the long-term value proposition prices piece of that, an important piece of that, but not the only piece of it.

So -- and in terms of, call it, receptivity in the market and the client base, we feel like our price assumptions are appropriate and not expecting any necessarily anything meaningfully more or less than what we communicated last quarter.

Perfect. And just a follow-up, Maria, you talked about at Analyst Day AI rollout, especially for the sales force. And how that was helping them become a little bit more productive. And I'm wondering where you are in that rollout, maybe I'm not sure if you can give a percentage of the salespeople that are able to use the AI or what the plans are for kind of full rollout of that program.

Yes. Great question. And I love this topic and love speaking about our sales force in our distribution and the investments that we make in them in their ecosystem and specifically their technology. We talked a lot about at Investor Day what we call the zone, which is ADP's tool that we are rolling out across the sellers, leveraging generative AI to make them more productive. And so that's everything we've talked about in terms of sales modernization over the last year or so. with respect to call summarization, pre-call planning, coaching, things of that nature. I believe at Investor Day, we cited that it was deployed across, I think, roughly 40% of our sellers. That has increased, Kartik. I don't know that I want to be in a position where every quarter we're giving you the update, but it's definitely north of that at this time.

We actually just had all of our sales leadership together across ADP at a meeting. And I have to tell you, I had a chance to see the preview of what's coming with respect to kind of the next iteration of generative AI inside of these tools. And it is it is unbelievable. If somebody used to do this job or the sales job for a living, although I still do. I have to tell you that this stuff is way ahead of its time. It's ahead of a lot of the tools and technology vendors that we even leverage we're helping guide their road map, and it is going to be a game changer.

And I think the most meaningful thing that I would say is sitting in that room with all of those sales leaders is their willingness to engage in these tools to help change the workflow of how our sellers actually go-to-market and engage and prospects and close and sell and even past the implementation. And I think that's exactly the types of responsible leaders that we have that are willing to train these tools and make them useful and have those tools impact their sellers' productivity because that's really the end goal.

So I don't want to unveil all those things to you right here on the earnings call. I really look forward to the data we get to show these things to you. live, but they're pretty incredible. And as you can tell, I'm always bullish on the investments we're making into our distribution. As you know, it's a big competitive differentiation for us here at ADP.

Our next question comes from Bryan Bergin with Cowen.

This is actually Jared Levine on for Bryan today. To start here on the POPs, I just want to confirm that actually came in line with your expectations for 1Q. And I guess what drives the confidence that you can accelerate that growth to hit the midpoint of the guide?

Yes. Jared, it's Peter. I came in, yes, broadly in line with our expectations, maybe 10 basis points or so above actually. So we were happy with where the first quarter came in with respect to WSE. Our confidence that we do have a little bit of a ramp, but again, not meaningfully different percentages. But if you're talking at 10 or 20 basis points, a little bit of a ramp in the second half of the year, which is really a bookings-driven assumption. We're not anticipating in the same way we spoke about with yes, we're not anticipating any ramp through the year in the PEO pays per control metric. So really, it's a bookings-driven assumption, and we are investing in the team, we feel the team is very well placed to deliver on that objective. .

Great. And then in terms of the PEO July 1 enrollment, Perry, can you talk about your performance there? Did you win is any change in participation rates, enrollment rates or any kind of buydown behavior?

Yes. Happy to take that. You're absolutely right. We just finished the enrollment period, proud of how the team executed through the cycle. I think there's no secret out there that health benefits are topical and on employers' minds. So continue to see the value proposition of the PEO and specifically how we structure our PEO win out there in the market and really help employers navigate these changing times.

I will tell you, health benefits are and remain the norm for all of the higher wage industries that our PEO targets. Those participation rates that we've seen, they're actually the highest for us that they have been the highest levels, if you will, for the last 4 years or so. So we have seen actually a bit of a participation uptick. That's great to see because it does substantiate that we're selling to the right industries and those industries do value benefits as part of their offering to drive their overall employment -- or employer value proposition. So I think our PEO fits squarely into how difficult it is for employers to navigate and that size today out there?

Our next question comes from Ashish Sabadra with RBC Capital Markets.

This is David Paige on for Ashish. I was wondering if you could just provide a little color on the acquisition that you made in the quarter, why it was needed and the benefits and maybe financial profile, if you had one.

Yes. So perhaps I'll start, if my voice here holds up, I'm so glad you asked. We're really excited. As you know, here at ADP one of our strategic priorities is to lead with best-in-class HCM technology. And that's exactly what this acquisition brings for us. And so we're focused on bringing the best products and services to our clients. And while we've currently had offerings within this space, this is above and beyond what we've currently been offering, and we're really excited to fold this technology into our existing offering.

I think this acquisition is a great approach of how we're thinking about innovation, how we're thinking about the value proposition to our clients. companies certainly need innovative compensation management software. That's exactly what this is. And so we're really excited to bring it into our portfolio and into our various platforms for both existing and prospective clients. So again, really excited about it, excited to announce it. And certainly, I'll take the opportunity just to welcome all of the associates of Pequity into ADP. Really excited about the work that we'll do together.

And then, Peter, if you want to talk about the financials about?

Yes, absolutely. The -- David, it's a small company today. So the financial profile is not meaningful in the context of ADP for this fiscal year. We're excited, as Maria said, about the opportunities for the product. it's an acquisition, a strategic acquisition. But in terms of the financials, not really noticeable in the context of ADP and has been contemplated in the outlook that we've reaffirmed today. So that's all I would have to say on the financial side of it. .

Our next question comes from Daniel Jester with BMO Capital Markets.

Great. Appreciate all the color on the demand environment so far. Maybe I'll just tackle it from a little bit of a different angle. Anything that you'd call out with regards to the difference between sort of the U.S. and international markets? I know last fiscal year, there's maybe a little bit of choppiness on the international side, but just wondering kind of what you're seeing in that mix.

Yes, sure. Thanks, Daniel. And choppy is one word. I think we like lumpy better than choppy, and that's not atypical for international for us. It's generally these are large complex deals. They do have a bit of a lumpy pattern to them. And certainly, while we did see a little bit of a softer quarter with international in the third quarter, we also saw incredible strength in the fourth quarter with international. So international this quarter, Q1 of fiscal '26 were again a bit softer for us, but that's mainly, again, back to kind of the lumpy nature of it. It's not a typical on the heels of what was an incredible finish.

The pipeline is solid. They're executing well, and they continue to remain laser-focused on executing throughout this fiscal year so that they can reaccelerate that growth for the finish.

Great. And then maybe to go back to an earlier topic of conversation on the Workforce Now NextGen. For the 20% of new bookings to choose not to take it. Is there any commonalities in terms of why that is or friction that you're seeing? And should the expectation be for that segment of the market at some point this fiscal year, that gets to 100%? Or how should we be thinking about that?

It is a fantastic question, one that I like to ask myself very often. The real answer is I don't know that we will get to 100% at the end of this fiscal, because there are clients in that space. Certainly, the mid-market is a space that does a lot of acquisitions, things that at nature adds locations. So clients will always want to ensure they have kind of one offering, if you will. So the bulk of that 20% are clients that are or call it, knockouts and some capacity. The most common knockout is a client that's adding a location or adding a company to their existing portfolio. So that's kind of where it stands. .

Our next question comes from Tien-Tsin Huang with JPMorgan.

Just a couple of questions. One, on the PEO side, thinking about WSEs and how that's tracking and your benchmarking versus your peers. How would you to rate your performance there. I'm curious if we're seeing some pretty wide variance in where that's coming out. So it does feel like ADP is doing well from a share side, but just wanted to hear your impressions of that.

Yes. So I think overall, we feel really positive about the momentum in our PEO. We did see PEO bookings growth continue through the first quarter. Although listen, it moderate a little bit based on kind of the finish that PEO had in the fourth quarter. So there was a tiny bit of moderation, but it's still the growth continued through the first quarter. We actually were just down all of us last week down meeting with our PEO business and spending time with their leadership and their management. And they're squarely focused both on bookings, they're focused on driving retention, which improved slightly last year, and we continue to see slight improvement. And that is really what is going to drive that WSE growth.

I would say in the context of others, I think we're winning. We have a winning hand structurally. We have a winning leadership team, really impressed with how they're aligned towards execution and how focused they are specifically on growth and WSE growth. So I don't know, Peter, if you have any comments with respect to RWCs and versus the others. But I think certainly, we feel as though we have a winning hand in the context of the other PEOs.

Yes. No, I would just say Tien-Tsin, I think you know this, everyone has a slightly different accounting convention for many of these things in the PEO landscape. So in terms of what we measure and how we measure our business, as Maria said, I think we're really happy. I answered the question earlier. The first quarter was slightly ahead, but not meaningfully, but slightly ahead as opposed to the alternative, which is always good, so slightly ahead of our expectations on WSEs. And as we both said, we expect -- we have a winning team there, and -- we are expecting more booking success through the year that will drive the number up a little bit, but not markedly, we're still squarely in the 2% to 3% range.

Okay. Good. I'm glad to hear it. Just my quick follow-up. I had to ask you here for you, Maria. It's nice to see you at the Fiserv Customer Conference, the reporting results right now as well and stock is down quite a bit because through quite a bit of change, cultural shift. So just the commitment on -- obviously, our view being at the event shows the commitment, but could this alter some of the maybe the targets that you're expecting from the partnership, given they're going through some restructuring there? And I don't know how much insight you have on that, but I thought I'd ask you on the call. .

Yes. No, I appreciate the question, and thank you. Listen, it was an honor to be there. I think it's almost exactly 1 month through the day that I was on stage with the CEO of Fiserv. We are very committed to this partnership. We're very committed to the sales collaboration, sitting up on that stage and looking out into a sea of analysts, but also potential clients, partnerships, banks. What I have to tell you is what we are doing with Fiserv and other embedded partners by serving up run in the platforms that they live and operate as a game changer. And we see that, by the way, we also see it inside of our own ecosystem of distribution.

One of my favorite examples that I heard this quarter was a CPA that we've worked closely with for years, and our downmarket bring us a client of theirs that is currently leveraging Clover, and we have the ability to put again, ADP inside of that Clover relationship with that client, and it made things much easier for the small business, which is the entire goal but also much easier for the CPA. So we're serving the ecosystem as well. And giving that client and the CPA, the ability to kind of see their end-to-end cash flow.

And so that's really exciting. I have to tell you the work that we've done from a technical perspective is great from a sales collaboration is great. From a marketing perspective, is great. There's no shortage of commitment to it. That said, though, we did just roll it out across the back book. I mentioned that a bit earlier, I think when Mark was asking about it. And so the bulk of the opportunity is still in front of us. It's very much early innings for us, but there's no lack of commitment.

Our next question comes from Kevin McVeigh with UBS.

I know you talked about the impact of the 1 processing day. Can you just remind us of what that sensitivity is in terms of what the impact is Q1 to Q2?

Yes, I don't have the number to hand, Kevin, but it's not a big number. I've got Matt, I'm looking at Matt here around $10 million.

It's a modest path Kevin, small number. small number, it's not going to be you'll see it a little bit but not much.

When I was talking about it earlier, I'm talking about in terms of the revenue growth rate, I think the main driver in terms of the second quarter revenue growth rate is versus first quarter is the fall off of the acquisition -- the anniversary, I should say, the acquisition effect. We might be talking 10-ish basis points something like that for the processing day, but I don't recall the exact number, but it's not a meaningful number. It's just something you may observe in the growth rate cadence from Q1 to Q2. .

That's very helpful. And then can you just remind us because it was great to see that the increase in the float on both the client funds and the extended strategy. But obviously, the balances are pretty meaningfully different in terms of the principal, right? Just remind us why -- because both went up about $10 million. Is that just purely the difference in rate or timing? It's just -- it's a pretty interesting phenomena.

Yes. So our yield expectations essentially haven't moved. Yes, there's slight moves within the 3.4%. But we did have a marginal adjustment, if you like, to the forward curves back in late July when we produce our initial guidance to when we produced this reaffirmation now, but it's really a balance driven thing. So we saw, as you'll see, I think, in the reporting we did for the first quarter, we saw very strong balance growth in the first quarter. A lot of that is driven by continued strength in wage growth. we have contemplated both in the client fund interest in the some moderation to wage growth in the rest of the year, which is why we're guiding to 3% to 4% as opposed to the 7% that we delivered in the first quarter. But the $10 million is really coming from the balances from the denominator, not so much from the movement in yields. .

Our next question comes from Dan Dolev with Mizuho.

Sorry, and I was on a different call. So apologies if the question was asked. Can you maybe touch again on that pays per control, lower pays per control, that would be helpful. We're getting a lot of questions about it. And apologies if that was addressed. .

That's okay. Dan, I'll take that. Again, we've you could say we've narrowed our range to the low end of the range. So again, we're talking about probably tens of basis points of movement in our projection on the full year, not meaningful amounts of revenue, not meaningful amounts of margin. it's there, but it's not particularly meaningful. Really, it's come from the data we see in our own client base in terms of hiring levels. I should add to that in the context. We're also seeing very low levels of layoffs in the base.

So it's a very static situation. It felt like a move to the lower end of the range we previously quoted is appropriate just given where the macro is that were to change. Obviously, our assumptions may evolve through the fiscal year, but right now, I don't think it's a big surprise that hiring is tight. And as such, we've just narrowed our expectation within the range that we previously guided towards the low end.

Got it. And hopefully, I'm not redundant at again because I should be on the entire call. But on these recent announcements, whether it's Amazon or whatever, is that changing the calculus or it's already included in your expectations?

Not really. I mean these things they make news, obviously, they're headline worthy, but we have a really large base, 1.1 million clients and 26 million workers paid in the U.S. We pay Amazon, in fact, and that's a small fraction of very small fraction of the number of workers we pay for Amazon. So these things are contemplated in our guidance. Again, what we're seeing in the wider macro data is certainly reduced hiring levels, but also, as I said a moment ago, very much reduced layoff levels to sort of lows we haven't seen in a number of years. So the whole hiring situation is relatively static and we believe contemplated in our guidance. .

Our next question comes from James Faucette with Morgan Stanley.

It's Mike Infante on for James. Maria, it'd be great to get your perspective on the stable coin topic potentially being used as a mechanism to pay employees. We can obviously sort of debate the magnitude of adoption. But how do you think about your intention to support that as a rail? And how do you think about some of the regulatory compliance or tax constraints that would have to be cleared in the interim.

Yes, it's a great question. We think about it a lot. We think about it from exactly what you're suggesting, which is from a regulatory perspective. So I think that's the big piece that we are keeping a keen eye on is with respect to the regulatory environment. And ultimately, once that clears how ultimately we will be able to support our clients as they navigate that as an offer in terms of a payment should that happen.

So I think those are the questions that we are keeping a keen eye on both in Washington as well as kind of through the banking environment. But certainly, as it relates to the banking side from our end in terms of real time and rails, we are preparing ourselves for all possibilities as these things evolve. And from a strategic perspective, that's an imperative for us to always make sure that we are in a position to support how client employees want to get paid. And certainly, if things evolve we'll be at the ready to do it.

We have time for 1 more question. And that question comes from Zachary Gunn with FT Partners.

I just want to go back to last quarter, there's some commentary around the full year guide, assuming a continued moderation in the macro. I recognize is tightening the range on pays per control more around basis points. But I just wanted to see if that -- if the guide still has some level of moderation baked in or if we've seen the macro move towards those expectations?

I think -- I mean, I think we have seen a little bit of that. The main metric I'm talking about is pays per control. So again, we said we expected to -- well, sorry, we rounded down to 0% in the first quarter, which was a little lower expectations. So I think we have seen some of that flow through. But again, I would say, consistent with what I've been answering some of the earlier questions, I don't think these are material moves away from where we really envisage things. You can obviously see that our guide has been reaffirmed. And hopefully, you can tell that we feel confident about our ability to deliver on that guide, particularly when it comes to revenues impacted by things like pays per control. We have our float income going a little bit in the opposite direction.

So I think we have the macro contemplated. Of course, things can change outside of our control. But that maybe none of us are aware of yet, but that's not our base case assumption. I think our base case assumption really is very similar to what we said 3 months ago. We're just sort of refining at the margins a little bit some of the metrics like client fund interest and like pays per control, call it, either within or very close to edges of the range as we previously shared.

Thank you. I'd now like to turn the call back over to Maria Black for closing remarks.

Thanks, Michelle, and thank you to everyone this morning. for your interest. I have to say the last few weeks have been a time that I've been thinking deeply about all of our stakeholders, all of our investors, our analysts, the community or associates. And I've been thinking a lot about who ADP is in our fabric and at our core.

And I want to take a minute to really thank our associates for their undying commitment to our clients. It's really it's really incredible to watch our values-driven culture come to life. One of those values-driven culture attributes is, as a company, we provide insightful expertise. So with that, I want to take a minute to genuinely thank and acknowledge ADP Research and the team over there who has been tirelessly and diligently innovating and executing over the past several weeks to bring to life a weekly estimate of the ADP employment, National Employment Report, known as the NER Pulse that was made available to all of our stakeholders at the same time yesterday.

So this weekly measure is going to bring to life really the mission that they've had at ADP Research all along, which is about making the future work more productive through data-driven discovery. I have to say that we really mean it when we say that we're always designing for people here at ADP, it's in the fabric of who we are, and I'm incredibly proud to be ADP Red.

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

Tech conference. I'm Bryan Keane. I cover the payments processors and IT services here at Citi. And so we're excited to have a fireside chat with ADP. And Peter Hadley, the CFO, is here to help us understand the latest and greatest over at ADP. So I'll run through a bunch of questions. And if anybody has a question in the audience, just feel free to raise your hand, we'll bring a mic around. So with that, Peter, thanks for coming.

Thank you, Bryan. Good to be here.

I think I wanted to kick it off and ask the obvious question, just thinking about ADP, having such a great look at the macro environment. How would you characterize the macro and I'm thinking about pays per control, wage growth, bankruptcies and the overall spending environment?

Yes. No, it's an interesting question and never more topical, honestly, than literally right now. And a bunch of noise you may have -- some of you may have seen around -- even from the Fed around our data. Our numbers came out this morning. I'm sure everyone has seen it a little bit lower, I think, than what the market was expecting. I don't see those numbers nor does Maria or our Board even, certainly not our IR team until they come out. So we all get them at the same time that you do. But I would say not a huge surprise for us. I think the macro has been really following a trend of -- depends how you look at it.

On the short term, there's quite a lot of volatility from day-to-day, week-to-week, whatever. But I think if you take like a 6-month view, 12-month view, it's a fairly consistent trend of a gradual slowing -- continued -- sorry, continued gradual slowing. And we've been talking about that, calling that out in our numbers, in our guidance and so on. The underlying, I think, fundamentals are still quite good. We're still seeing employment growth. Wage growth, in particular, continues to be strong. It certainly surpassed our expectations in fiscal '25 for us, both in our PEO business, which generates a good chunk of its revenues based off of the payroll levels of the PEO clients as well as in our client fund balances, which grew beyond our expectations to a really healthy level. So I think wage growth is still there.

I think in terms of the employment numbers, there's not a -- the number of additions has certainly slowed as has the number of sort of layoffs or voluntary departures. So the market, I think, is relatively quiet in that respect, which might sound counterintuitive to all the headlines we read. But I think it's -- we're seeing a gradual slowing. It's not particularly moving at a pace that is surprising us either positively or negatively. It's sort of there. But for us, I think the most important underlying fundamental is the demand environment and the demand environment continues to be strong. Sales cycles have elongated. We may talk about that, Bryan, in your questions. But certainly, the demand environment for our services and what ADP offers, we believe, continues to be strong.

How about new business starts and bankruptcies? Any changes in those 2 metrics?

Not a lot. On the new business formations number, actually, they've been pretty healthy in recent months and quarters. So that's, again, another positive sign, if you like, to the economy. It's funny that these days, each day delivers a metric and one day it will disappoint. The next one you receive is sort of positive. But certainly, new business formations continues to be pretty healthy. Bankruptcies have been edging up a little bit, but more or less back to levels that we were used to, probably not even quite there yet, but towards levels at least that we were used to prior to the COVID period.

So again, it's -- there's a lot of healthy underlying fundamentals. There's also a lot of, I think, I don't know, indecision perhaps or stagnation around decision-making just given potential whatever policy or economic things that are going on out there and companies perhaps are waiting to see what happens. But I think underlying consumption now perhaps is the confidence index might be softening a little bit, but there's positives and there are negatives. And again, I think in terms of bankruptcies and business -- new business formations, that remains pretty healthy as does really the underlying fundamentals of the U.S. economy, albeit continued on a continued slowing trajectory.

I wanted to ask, ADP being the largest player in the HCM market and just kind of thinking high level here, given your size, how can the company reach that 6% to 7% midterm revenue growth that you guys have outlined, I think, in the Analyst Day. And that would be above kind of industry average growth of kind of mid-single digits. I mean, slightly above. But just thinking of your size, how do you guys able to grow above kind of industry growth rates?

Yes. I mean we are a big company, obviously, as everyone here, I think, knows, we have a lot of benefits from being a large company. I think the great thing for us, though, is whilst we are the largest player, we believe, at least in the HCM industry, we have tons of room to grow, we think. We size our market opportunity, and we did this at Investor Day a couple of months ago at $180 billion. Obviously, we are a little over 10%, maybe 11% of that number based on our last reported revenue numbers. So we have tons of room to grow. We've also been over our decades, at least of our history, the largest player in the HCM industry, and we've had a record, I think, of growing faster than what we see at least as industry growth rates.

So we have lots of opportunities. We can point fingers at many areas. I would say, in the down market, we continue to be really successful, I think, in adding clients to our offerings, be they new clients, be they in our client count growth, you may have seen that reported in our 10-K, continues to be really, really healthy in that space, notwithstanding the fact we have over 900,000 clients. We have additional offerings where -- which are really successful, but they still have relatively low penetration like retirement services, our insurance offering, our PEO. I think we sized that too in Investor Day in terms of the market opportunity. We see plenty of room for growth.

And then in the enterprise and global space, in particular, where I think on the domestic enterprise space, at least, we've perhaps not performed as well as we would have liked over the last decade or so. We have our offering Lyric now out in the market about 12 months, coming up to about 12 months, getting a lot of great traction there. Enterprise, in particular, takes time. It's a slower segment in terms of moving the needle just due to the size of the companies, the size and length of the sales cycles, the length of the implementation cycles, the change rates and what have you. But over -- taking a sort of a medium to longer-term view, we think there's tremendous opportunity there.

And then putting that together with our global opportunity, we've done very well in global payroll. We've been somewhat nascent in global HR, and we have a little bit of global time, but not a great deal. So between Lyric, our Workforce Software acquisition and our global -- continued strengthening of our global payroll opportunities, we don't feel at all bound by -- or constrained, if you like, by our size nor do we feel constrained to market growth rates because we see there's a lot more opportunity out there than what we've tapped today, notwithstanding the success the company has had for 76 years and our size.

Yes. I was going to ask about some of the history, just thinking high level again on the top line. I know previous Analyst Days, I think 2 Analyst Days ago, the target for revenue was kind of 7% to 8%. I think the most recent one we've been talking about 6% to 7% for revenue. And then you guided fiscal year '26 revenue growth of 5% to 6%. So just these are slight moderations. Can you help us understand how much of that is just economically driven or maybe some maturity in the market?

Yes, I would say it's very much more macro-driven than maturity in the market. So if I go from Investor Day, November 2021 to Investor Day June 2025, I would say, exclusively, they were very different times. Obviously, we were coming out of a pandemic. There was a difficult period, but with tailwinds coming out and there was some getting back to normal, so to speak, or whatever the phrase we used a few years ago collectively in society around exiting that pandemic. Now we're in a bit more of a slowing economy with a little bit more headwinds, I would say, than tailwinds, but not -- again, not dramatically. It's sort of a gradual slowing. So that was really predominantly the difference, if you like, between the November '21 and the June 2025 objectives.

Again, we don't feel any more constrained by sort of the market or the competitive environment now than what we did then. If anything, I think we probably feel better about our relative competitive positioning now based on what I was just saying moments ago around the enterprise space. I think our PEO is really coming into its own. And when you look at what's been going on with medical inflation and the way some of our competitors in that space take more risk onto their own books and what that can be a short-term opportunity for them. But over time, we don't believe in that model. And so I think we're coming into our own there. We're continuing to find new channels, be it embedded payroll and so on in the down market. We feel strongly.

In terms of the current year guidance versus the midterm, I wouldn't personally draw a lot of conclusions from that. I think the midterm is just -- is a 3- to 4-year type of view on average. I think we said at the time at Investor Day that some years could be a little above, some years could be a little below. I think there is some conservatism, I think, justified conservatism around we don't necessarily know how the macro environment will play out this year. We're not assuming major changes, but there could be some changes, whereas our midterm is a little bit more of a steady-state type scenario. But we are very committed. The most important thing, I think, is we're very committed to delivering the medium-term objectives we gave at Investor Day. We'd very much like to hit those numbers this year. I think if we perform at the higher end of our current year guidance ranges, we will be more there or thereabouts on all of those medium-term guides. And ideally, over the medium term, we'll do what we did last medium term, which has come in at the top end of all the key metrics.

Great. I want to ask about -- and you mentioned the enterprise capabilities, and those have meaningfully enhanced with the launch of Lyric and the acquisition of Workforce Software. When do you expect those to have a more meaningful impact on the revenue growth?

Yes. I mean they're already having a meaningful impact on our growth. In terms of the absolute size of the company, we're a large company, it takes time for it to bed in. But certainly, if I look at -- if I decompose our sources of growth as we do that when analyzing our performance and setting our objectives, it is playing an important role already in the sources of our bookings growth. And obviously, retention is sky high being a new product and also being in that enterprise space as long as we are able to deliver, which we have a good track record of doing that those clients tend to hang around quite a lot longer than the line average at our company level or our employer services level retention statistics would imply.

So I think in terms of moving the needle on our $20-plus billion of revenue, it will take some time. As I was saying before, the sales cycles take a little longer in that space just due to the complexity of the deals. As we go international, that adds a little more. The implementation cycles are longer than what we're used to in the down market and the mid-market. Again, this is not new information for us, not new learnings. We've been in this space for a long time. It's just -- it takes time for it to feed through and move the needle on $20-plus billion of revenue. But in terms of our the importance of it to our -- to the growth that we're expecting and have been experiencing over the last year or so, it's already an important contributor, if that makes sense.

Yes. Yes, definitely. One of ADP's greatest assets I always think about is its distribution ecosystem. Can you provide color on the ecosystem and specifically the new embedded payroll channel?

Sure. Yes. I mean it's one of the great strengths of ADP for -- since we began, I think. And we have 10,000-plus sellers. We have a huge amount of territory coverage. We are -- I won't be able to do it justice in a chat like this, but just the degree of infrastructure behind the ability to source, onboard, train sellers and also retain particularly the ones we want to retain. It's a huge machine. It's really a great asset of the company.

The other thing about it is we continue to be innovative. So whether it's adding new channels, embedded payroll is just another channel, one we're excited about, but we've been working channels for years, be they in the downmarket accountants, banks, brokers, brokers in the mid-market, ERP players in the mid-market and the upmarket systems integrators. It's an important channel. It's another sort of initiative to continue to enhance that distribution capability that we have as is some of the tools, including AI and our tool, The Zone that we spoke about, which is a combination of Salesforce technology, salesforce.com technology as well as our own -- some of our own proprietary tools and AI that we are enabling our sellers to really become more efficient, but hopefully, more than efficient, being more effective, be more knowledgeable when they go to the sale, pulling insights, identifying the propensity for certain buyers to be interested in our solutions, which solution? Are they -- for example, are they a 50-person company that's just added employees in a couple of different states. Maybe they're going to be an opportunity for our PEO business, do they have benefits or not. It's really about making the sales force, I guess, more effective through intelligence and so on and then just broadening our reach through distribution.

So yes, I would concur, I think, with the line in your question, like it is a huge asset for ADP and one that we find -- we feel really differentiates us from our competition. It's also to add that many sellers and sellers are on a relative basis are expensive. They're an active resource more so than maybe some of the other resources in a business like ours. So just being able to have the balance sheet and the size, financial capability and capacity to continue to maintain and grow that investment, I think, is also an advantage that we have.

I know ES new bookings get a lot of attention, came in just slightly below expectations in fiscal year '25. What gives you the kind of the confidence that the growth will accelerate in fiscal year '26?

Yes. Yes, good question. We -- the number did come in a little lower, but we were -- again, we were very -- still very pleased, I should say, to deliver $2.1 billion in new business bookings for Employer Services. It was 3% growth. We are confident. A number of the things are around sort of what I was just saying around additional capabilities we're adding to our sales force. We're not just investing in tools and not just investing in channels, we're also investing in the sales force headcount itself.

So we continue to grow our sales force headcount as well as sort of the capabilities and the maturing, if you like, the continued maturing of some of our newer products like Lyric, like Workforce Software, those -- the amount of work that's going on in integrating those solutions, not just the 2 of them together, but with our global payroll, with our Workforce now offering, we're in a better place than we were a year ago with respect to that. So those things help us.

I think the other thing that gives us some confidence, and again, we don't have full control over the macro, but is when we see within the number, how the different businesses are performing and there's no clear structural challenge in any sort of segment. We spoke about this on our earnings call, I think, like we've had -- in our third quarter earnings call, we spoke about how international -- our international bookings have been affected that we had a better performance in international in the fourth quarter, which is sort of the typical biggest period for many of our businesses, but international in particular. So that was encouraging.

It was not, okay, we don't have a structural issue. Is international going to be difficult for a few years. Time will tell, but we don't feel like that's the case because we've seen sort of some challenging quarters and we've seen some strong quarters. We saw the same, albeit the order was a little bit reversed in our in our HRO -- ES/HRO offerings where we had a very strong first half of the year, sort of softened a little bit in the back half. The PEO, which we don't report the numbers, but the bookings we commented, we're really pleased with the PEO bookings in FY '25, particularly in the fourth quarter. So we don't feel that there's anything at the moment at least that is structural. There's certainly the continued gradual slowing, which is a little bit of a headwind, but we feel we can overcome that through the investments we're making both in distribution itself as well as the products and services that our sellers are out there selling to our prospects and our clients.

What's the typical growth rate you guys grow the sales force every year? And what is it going to be this year?

Yes. So we grow around half or maybe slightly above half of sort of the bookings growth we're anticipating is headcount growth and the difference effectively comes from what we call sales force productivity, which is driven by a number of the things I was talking about, the effectiveness of channels, the tools, the products themselves and offerings. So our formula, we don't necessarily give the exact numbers, but you could think about it as around half or maybe slightly more than half of our sales growth we expect to be able to deliver through additions to the sales force headcount growth and the difference coming from sales force productivity.

Yes. Can you talk a little bit about how the bookings number, employee services hits the revenue and organic growth number? I know we all look at the bookings number so heavily, but it only has a minor impact on the organic growth of the company.

Yes. I mean it certainly -- it has an impact. It's -- as I know I've spoken to some of you about this, it's not the easiest one to model. We appreciate that. It's very important to the revenue number. It's the lever, again, when I think about our revenue model itself, it's the lever that moves the needle the most because retention, we can talk about retention, if you like, but retention is very high. Obviously, that's not necessarily guaranteed. We have to do a lot of work to maintain that. But we don't see a lot of movement there, pays per control and other things, price and what have you, also are smaller levers in terms of moving the needle.

So it is really important, but it's challenging to model because, I guess, our diversity and where the bookings are coming from, we obviously try to give color on that. We don't report the numbers, but we try to give color on where the bookings are coming from. So -- but again, like bookings in the downmarket space might start literally within hours or days, perhaps a couple of weeks, depending on the client's desire and need from when the booking is made, whereas go to the other end of the spectrum, a 22-country multi-country payroll and perhaps these days, Lyric HCM system of record, that could take 3 years to roll out. Now again, it doesn't take 3 years to get the first dollar of revenue, but it progressively builds. So it really depends on the segment mix, if you like, of the bookings as to how it flows through.

But for ADP, the way we run the company internally and with our sales force is a booking ultimately is only a booking once it becomes revenue generating. So again, like we could sell a deal, for example, in the enterprise space. And if that deal did not go live 12 months later, then the booking that we may have taken gets reversed. Obviously, if we don't think it's going to go live, we wouldn't book it to begin with. But sometimes circumstances changes with clients. So ultimately, every dollar that you see in terms of what we report in bookings makes its way into revenue. It's a question of when, which segment it's coming from, but it certainly all flows through. But I think people have -- and we try to give as much color as we can to help with the modeling. But you may see as our -- as we continue to strengthen in the enterprise space, the conversion rates may have to shift a little bit just due to the sales and -- well, not the sales, but the implementation.

Yes, because international, those deals take a little longer to close and implementation, I assume is a little longer than the U.S.

Yes, yes. And the bookings don't get recognized until the sale is closed, obviously, but the implementation cycle can certainly impact the timing to revenue.

Yes. I did want to ask about client retention. I know it improved 10 basis points to 92.1% in fiscal year '25. Even that's a high number, obviously, as you said. Is there room to grow there? Or is that pretty a stable number? And what was driving kind of the improvement to begin with?

Yes. I mean I think there's -- we always think there's room to grow. I mean if you look at structurally, one thing that can impact the aggregated number, obviously, is the mix. So if we're growing -- and we have grown, as you all know, I think, very strongly in the down market. The down market structurally has a lower retention rate because of the ease of change, I guess, for smaller businesses versus enterprise clients is easier. Their bankruptcy rates are obviously a little higher in the down market and so on.

So the mix can play a part, if you like, in the aggregated number. For me, what -- in terms of how we run the business, we're very much focusing on the total is important, but certainly, the trends by segment, by business unit is important. And we believe that we have opportunity in pretty much all of our businesses, I think, to improve retention. Whether that will manifest in the total in a meaningful number is hard to say. We have had steady improvement over recent years, I think, as you're aware, we think that, that -- we don't think we're at a ceiling. In terms of our guidance, again, that's -- and we've gotten a lot of questions on that. We don't necessarily have an insight that tells us retention is going to -- a specific insight, I should say, that retention may decline this year.

We're coming -- our guidance is predicated around continued macro slowing and our experience with macro slowing is that those bankruptcy rates that you were talking about earlier do tend to rise as macro slow. And again, we know that we've said the same thing for the last couple of years, and this has not manifested. We've been happy about being wrong on that one. We'd be happy to be wrong again this year. But we don't think we're at a ceiling.

And in terms of what's driving it, many things, I think, but the most important thing, I think, is our focus and attention on delivering for our clients at all the time and in every way we can. And whether that's through great service, through great products, it's all of those things. But we have really an extremely strong focus on that. Maria, in particular, comes not that Carlos did not. Of course, he did, but Maria, in particular, comes from very much the commercial side of the organization from sales, from client service and operations. And I can tell you that the culture and the attention to delivering for our clients has never been stronger in the almost 24 years I've been at the company.

So we will continue to control that to the best extent we can and deliver, control what we can control. The macro will do what it does, but -- and we'll see how that manifests on our retention. But I don't feel like we're at a ceiling to answer the first part of your question again, in any way. I think we have opportunity, but I would caution just given our size and also the mix, I wouldn't necessarily expect it to go from 92.1% to 96% overnight. It's not -- it doesn't move like that, but gradual improvement is our objective.

You mentioned PEO and the strength in PEO bookings you saw towards in that fourth quarter. What would it take to get back to that double-digit growth rates in PEO?

Yes, it's a good question. I think first and foremost, we are happy with how the PEO is going. Of course, we would rather be the 10%, 12%, 14%, whatever it was, rates of a few years ago than sort of where we're thinking we are now, even where we delivered in '25, which was, I think, was really good. There's a couple of things. The primary one is sort of the same-store sales metric. We are at similar levels with our PEO slightly above, but not meaningfully above, very similar to sort of what we do report for Employer Services, and that's quite different. We're talking 400-ish, maybe even a little more basis points lower than where that number was 4%, 5% lower than where that number was a number of years ago when we were driving those type of growth rates. So that's probably the main driver.

I think we had some execution challenges a couple of years ago. We've made a number of changes, including in leadership in the PEO as well as, again, some focus on the product and just our -- the way we're addressing our clients that is certainly helping us. So continued bookings strength and growing that bookings number is an important lever. The other one, I think, sort of depends how you look at it, but medical inflation, I guess, helps the headline revenue number in the context of the 0 margin pass-through stuff as we pass through, again, we don't take any medical underwriting risk on our books. So that flows through.

It also has a bit of an impact on retention. Our retention has not been declining. I think we spoke about a moderate improvement in retention in '25 over '24. But certainly -- and by the way, this is not a base case assumption of ours that medical inflation is going to ebb meaningfully in any time too soon. It doesn't necessarily feel like the underlying dynamics are going that way. But that -- if that were to happen, and we're able to take advantage of that, if you like, with some sort of noticeable for us, improvement in the retention rate, while at the same time, pays per control were returning to levels they were and then lifting our growth rates perhaps to or at least in the direction of those numbers is certainly possible. Like I said before, I think our market opportunity there, we have around 750,000 worksite employees. I think we sized the market at around $4.5 million, $5 million. And I think the PEO space, I'm trying to phone a friend here, but I think is maybe 30%, 40%, if you like, of that $4 million to $5 million number.

So I think there's plenty of room for the business to grow and the offer to take effect. We're very good at mining our own existing ES client base for PEO client candidates, which is not cannibalization of our revenue. We get good revenue uplift from doing that. Certainly, it's all possible, but the biggest thing that we could benefit from in terms of lifting our growth rate up from the levels we're talking about would be a return to employment growth. But again, it's not our base case assumption, not just this fiscal year, but it's not our base case assumption in our medium-term guide, as you can tell from the 6% to 8% we were talking about in the medium term.

Yes. I got to ask you the popular question on rate cut potential. So 25 to 100 basis point rate cut, how do we think about that impact to the model?

Yes. So I mean our current year guidance contemplated the -- I think it was around 100 basis points that the market had baked in when we were pulling our forward curve. So we don't come up with our own prediction of rates. We just use the forward curves that exist at the time when we give guidance. So if there is 100 basis points over our fiscal year, which, again, we're in the first quarter at the moment, then that should have no impact, if you like, on us being able to deliver our current year guidance with respect to client funds interest.

For us, we have more interest rate exposure, if you like, to the -- a little further out on the curve than Fed funds. If you look at Fed funds, I don't have the numbers to hand, but they're in our 10-K filings, what a 25 basis point move is in short-term rates only is single-digit millions of dollars. And again, we have contemplated, I think we actually explicitly said that in our prepared remarks for our last earnings call. So 100 basis point move in Fed funds, all else being equal, shouldn't have any impact on our numbers. And again, our exposure is a little further down the curve than Fed funds when you look at sort of our client short and our borrowing numbers, there's somewhat of a close natural hedge there. So I'm not -- we're not concerned about that. Should that happen. If anything, that might actually be a net tailwind to ADP if it does sort of help the broader economic environment should that happen.

But in terms of our client fund interest, no, not expecting that -- those rate cuts, if they materialize to have an adverse effect on the numbers that we've been talking about for the year. We're much more -- again, our model for those who follow it is much more -- the best thing you can do to look at sort of where ADP is heading in CFI, at least in the sort of this year and the next couple of years is each fourth quarter, we produce in our earnings materials, we produce a schedule, maturity schedule, which shows the dollars maturing and the embedded rates. That's the biggest driver, not so much changes in absolute rates even because if we look this fiscal year, we have $7-plus billion maturing at an embedded yield of 1.5%. So you can apply your rate. And again, they're not invested at Fed funds. They're invested typically over durations out to 10 years. So that's what moves the needle much more for us is sort of those yields from, call it, 2 to 7, 8 years is more what moves the needle for us and moves relative to our maturity stack than just the growth in the balances themselves.

We got about 60 seconds, so I'm going to do what every analyst always tries to do, which is cram in 2 questions, long questions that you're going to try to answer in 60 seconds. The first one, just there's been tremendous margin expansion at ADP over the last 5 years. How much more is there left? And any key drivers you can point out in 30 seconds? And then I got another one.

Yes. I think more than 5 years, I think we've been -- we had a great track record with margin expansion. We expect that to continue. Again, we gave our guide many things. Again, growing the company is the most important thing in terms of delivering margin expansion. That's what I would say. We have plenty of opportunity, I think, with AI and other initiatives we have to make -- to improve our productivity. It's important for us. We continue to invest, but growing the company is the most important thing for us in terms of margins.

And then I'll leave you with this. You've been a couple of months at -- in your CFO seat here at ADP. What surprised you the most?

Good thing is I've been at the company for, like I said earlier, more than -- a little over a couple of decades. So not a huge number of surprises. The transition was very well managed by the Board, Maria and Don, my predecessor. So not a huge number of surprises, just excited about the opportunity in front of us and plenty to do, plenty to execute on, but really looking forward to it.

Great. With that, Peter, thanks so much for being here.

Thank you, Bryan. Appreciate it. Thank you, everybody.