ADP reported strong Q3 FY26 results, beating expectations with 7% revenue growth, 80bps margin expansion, and 10% EPS growth. Management raised full-year guidance, citing broad-based strength in bookings and retention, along with tangible productivity gains from AI investments across the business. Raised FY26 revenue growth to 6-7%, EBIT margin expansion to 70-80bps, and EPS growth to 10-11%.
ADP reported strong Q3 FY26 results, beating expectations with 7% revenue growth, 80bps margin expansion, and 10% EPS growth. Management raised full-year guidance, citing broad-based strength in bookings and retention, along with tangible productivity gains from AI investments across the business. Raised FY26 revenue growth to 6-7%, EBIT margin expansion to 70-80bps, and EPS growth to 10-11%.
Management emphasizes AI as a core strategic priority, with ADP Assist agents gaining traction and driving efficiency gains (e.g., saving 30 minutes per payroll, reducing clicks by 80%). They also highlight AI as a tailwind for demand, as it increases workforce complexity and…
Reported gross margin was 48.28%, reinforcing the quarter's better-than-guided profitability.
Record client retention and satisfaction, driven by strong execution in international, compliance, and small business.
Management consistently expressed optimism about the company's strategic position, highlighted strong results ahead of expectations, and reinforced confidence in future growth driven by AI and operational efficiencies.
Management emphasizes AI as a core strategic priority, with ADP Assist agents gaining traction and driving efficiency gains (e.g., saving 30 minutes per payroll, reducing clicks by 80%). They also highlight AI as a tailwind for demand, as it increases workforce complexity and the need for trusted HCM partners, while also enabling productivity improvements that support margin expansion.
Record retention and client satisfaction in Q3. Management consistently expressed optimism about the company's strategic position, highlighted strong results ahead of expectations, and reinforced confidence in future growth driven by AI and operational efficiencies.
Management discusses disciplined investment in AI and R&D, with a pivot of spending towards AI initiatives. No specific capex numbers are provided, but investments are funding product innovation (e.g., ADP Assist, Lyric) and internal tools (e.g., the Zone), which are yielding productivity improvements and margin expansion.
Management consistently expressed optimism about the company's strategic position, highlighted strong results ahead of expectations, and reinforced confidence in future growth driven by AI and operational efficiencies.
“We launched a dedicated space within Marketplace for carefully selected AI agents, from our partner companies”
“Our ADP Assist payroll agents have saved an average of 30 minutes per payroll. 20% of the total service population was on the zone platform”
“We just recently secured several new enterprise clients, including one of which has tasked us to deliver a 30 country payroll transformation.”
| Metric | Period | Range | Midpoint | Status |
|---|---|---|---|---|
| EPS | FY2026 | 10%–11% | 10.5% | RAISED |
| Op margin | FY2026 | 0.7%–0.8% | 0.75% | RAISED |
| Revenue | FY2026 | 6%–7% | 6.5% | RAISED |
ADP's AI service tool is built on Salesforce technology, indicating a technical partnership.
“Our proprietary service tool built on Salesforce technology”
That's excellent color. Thank you, Maria. And then with regards to the financials, you know, one, you mentioned how AI is making you more efficient. And, you know, I couldn't help but notice that the, you know, the R&D or the program costs, you know, were relatively flattish. you know, despite the, you know, 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, you know, across the board from AI, and particularly in terms of, you know, new product development and the tools that you might be employing there, both in terms of, you know, reduced expenses, but also, you know, speeding up the development…
Thank you, Mark. Yeah, 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. So quarter to quarter, I'm not sure what you're looking at, but at least quarter to quarter or sequentially, then the line 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 we're spending and investing to deploy the zone. Our proprietary service tool built on Salesforce technology that's rolling out AI infused and certainly helping. And then we have other You know examples floating around out there. 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 March 31. We We actually had a reduction. We do a lot of work for our clients validating tax tax Advantage sort of allowances and the receipts We actually deployed AI this year for the first time reduced the call volumes by 35% in the year-end process also reduced the labor by 35% and that was deployed against that sort of manual but very necessary compliance effort. 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 read 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.