Strategic Performance and AI Integration

• Management attributes the strong quarterly performance to a 'defining moment' in HCM where AI adoption is increasing workforce complexity, driving clients toward ADP's trusted compliance and data scale.

• The company is pivoting from surface-layer automation to 'ADP Assist' agents that are embedded in core payroll and tax processes, aiming to solve high-stakes functions where accuracy is non-negotiable.

• Operational productivity is being driven by the 'Zone' platform, which has already reached 20% of the service population and is helping reduce client contact volumes by 8% year-over-year in small business segments.

• Strategic positioning is reinforced by a 'final mile' ecosystem of local regulatory expertise across 130 countries, which management views as a structural advantage that is difficult for new entrants to replicate.

• The 'Lyric' HCM platform is expanding the addressable market by offering a flexible, position-management-based architecture that appeals to large enterprises undergoing complex payroll transformations.

• Retention and client satisfaction reached new record highs for a third quarter, which management interprets as a validation of their value-based pricing and recent product investments.

Fiscal 2026 Outlook and Early 2027 Assumptions

• The fiscal 2026 adjusted EBIT margin expansion forecast was raised to 70-80 basis points, reflecting realized productivity gains from AI tools and disciplined cost management.

• Management expects the 'Zone' platform to reach over 40% of the total service population by the end of fiscal 2026, further embedding GenAI-enabled workflows into standard operations.

• Fiscal 2027 planning assumes continued acceleration in margin expansion and a tailwind from the client funds portfolio as reinvestment rates remain above maturing security yields.

• Share repurchases are expected to continue at or above current elevated levels through fiscal 2027, supported by strong cash flow and a commitment to shareholder returns.

• The 4% to 7% new business bookings growth guidance for the full year remains in place, acknowledging that a range of outcomes is possible depending on fourth-quarter execution.

Operational Drivers and Risk Factors

• Client funds interest revenue guidance was increased by $25 million due to higher-than-anticipated average client funds balances, now expected to grow about 6%.

• PEO segment margins were pressured by higher selling expenses due to strong sales volume and a shift in revenue mix toward lower-margin state unemployment insurance (SUI).

• Management flagged that while AI may displace certain tasks, they expect it to create new job categories, maintaining that the complexity of managing workforces will sustain HCM demand.

• Foreign exchange contributed approximately 2 points to Employer Services revenue growth this quarter, though this tailwind is expected to moderate in the fourth quarter.