ADP · Research
ADP Grows 6.74% While Pays per Control Rise Only 1%, Leaning on Price, Float and the PEO
ADP fiscal 2026 revenue reached $21.95B. Employment at clients grew only 1%, so growth came from pricing, new bookings, $1.35B of interest on client funds and a PEO line that includes pass-through costs.
| Scorecard | Read |
|---|---|
| Thesis | ADP's retention near 92% and pricing keep revenue growing near 6% even with flat employment, and client fund interest adds stable income |
| What proves it wrong | Employer Services retention falls below 91%, or interest rates fall enough to cut client fund income by more than pricing adds |
| Next catalyst | Q1 fiscal 2027 results for the quarter ended Sep 30, 2026, with pays per control, bookings and retention |
| Key multiple | 18.41x EV / GAAP EBITDA of $6.36B |
| Debt | $4.97B: five notes of $1.0B each due 2028, 2030, 2032, 2034 and 2036, plus $1.8M other. Client fund obligations of $44.42B are excluded |
| Stock pay | $242.60M from the cash flow line, 1.11% of revenue |
What ADP sells
ADP runs payroll, tax filing, benefits and HR for employers. Small businesses and large enterprises outsource payroll to it, and its PEO business acts as co-employer for small businesses [1].
Fiscal 2026 revenue, the year to Jun 30, 2026, was $21,947.4M, up 6.74% [1]. Employer Services was $14,831.4M and PEO Services $7,128.1M.
How much of ADP is software
ADP does not split revenue between software and services. It sells payroll and HR outcomes delivered through its own cloud software, so the software is the delivery channel rather than a separate line [1].
Plainly: about 67.58% of revenue is Employer Services, which is payroll and HR delivered on ADP software. About 32.48% is the PEO, a co-employment service that includes benefits and insurance costs passed through at zero margin.
Interest on client funds of $1,354.8M, 6.17% of revenue, sits inside the two segments [1].
Zero-margin pass-throughs in the PEO rose $318.3M in the year [1]. They inflate revenue without adding profit.
Growth with flat employment
Pays per control, the count of employees on ADP payrolls at the same clients, grew 1% [1]. Employment growth at existing clients is close to zero.
Employer Services retention was 92.1%. New business bookings grew 6%.
PEO average worksite employees grew 2% [1].
With employment flat, ADP's growth comes from price increases, new clients and selling more products per client. Client fund interest adds a layer that moves with interest rates.
Client funds are the float
ADP collects payroll and tax funds from clients before paying them out. Client funds obligations were $44,415.5M at Jun 30, 2026 [1].
ADP invests those funds and keeps the interest. Interest on client funds was $1,354.8M in fiscal 2026 [1].
It is almost pure profit, and it falls if short-term rates fall.
Client fund obligations are not borrowings, so they are excluded from debt. The investments that back them are excluded from cash.
Average client funds grew 7.4% to $40.4B in fiscal 2026, and the average rate earned rose to 3.4% from 3.2% [1]. Both moved in ADP's favor.
A one point fall in that rate on $40.4B of funds would remove roughly $404M of interest income.
Segment profit
Employer Services earned $5,436.8M before tax, a 36.66% margin on segment revenue. PEO Services earned $936.1M, a 13.13% margin [1].
Other items, mainly corporate costs and interest, were a $642.6M offset.
PEO revenue of $7,128.1M is 32.48% of total revenue of $21,947.4M. PEO earnings before tax of $936.1M are 14.69% of the two segments' combined $6,372.9M [1].
The PEO matters less to profit than to revenue.
Employer Services earnings rose 9% from $5,008.5M, while PEO earnings fell 2% from $950.5M [1]. The filing shows Employer Services margin at 36.7% against 36.1% a year earlier.
Operating income is derived
ADP does not show an operating income line. Operating income here is revenue less costs of revenues less SG&A, $5.78B [1].
This is flagged as derived.
D&A from the cash flow statement was $585.90M, giving GAAP EBITDA of $6.36B, 29.00% of revenue [1]. Pretax income was $5,730.3M after interest expense of $459.3M and other income of $410.6M.
The toll-gate test
A toll gate owns the record, owns the connection, prices on outcomes and spends R&D on the gate. ADP passes the first two tests strongly.
It holds the payroll record and it moves the money.
Pricing is the weak test. ADP charges per employee per pay period.
If clients employ fewer people, ADP earns less, regardless of the value of the service.
The connection test is the strongest. Tax agencies, banks and benefits providers all receive payments from ADP on clients' behalf.
Replacing ADP means rebuilding all of those links.
The owner-cash staircase
Start with GAAP EBITDA of $6.36B: operating income of $5.78B plus D&A of $585.90M over the twelve months [1]. Each step down the staircase removes one thing an owner cannot spend.
Step one is operating cash flow of $5.44B, below EBITDA by $923.70M. Operating cash ran below EBITDA because of cash taxes and interest [1].
Step two subtracts stock pay of $242.60M, taken from the cash flow line. That leaves $5.20B.
Stock pay is 4.46% of operating cash flow, very low [1].
Step three subtracts all capex of $665.10M, including capitalized software. Owner cash is $4.53B, or 20.66% of revenue and 71.23% of EBITDA.
Capex includes property and equipment plus capitalized software and system development costs [1].
| Step | Twelve months | What the gap is |
|---|---|---|
| GAAP EBITDA | $6.36B | Operating income plus D&A |
| Operating cash flow | $5.44B | Working capital, cash taxes, interest and non-cash items |
| After stock pay | $5.20B | Stock pay treated as a real cost |
| After all capex | $4.53B | What an owner could take out |
Balance sheet and debt
ADP has five senior notes of $1.0B each, due 2028, 2030, 2032, 2034 and 2036, plus $1.8M of other debt [1]. Long-term debt was $4,964.1M and current debt $1.0M.
Corporate cash and equivalents were $4.23B [1]. Funds held for clients are excluded.
In fiscal 2026 ADP spent $2,083.3M on buybacks and $2,626.3M on dividends [1]. Cash returned was $4,709.6M, above owner cash.
The cover-page share count was 397,262,737 at Jul 31, 2026 [1].
What the multiple measures
EV is $117.18B: equity value at the Oct 27, 2026 close on 397.26M cover-page shares, plus debt of $4.97B at carrying value, less cash and equivalents of $4.23B.
On GAAP EBITDA of $6.36B that is 18.41x. On operating cash flow of $5.44B it is 21.54x.
Owner cash of $4.53B is 3.87% of EV.
Net debt is $735.00M, or 0.12x GAAP EBITDA.
What gets overlooked
The PEO pass-throughs make revenue growth look better than profit growth. Excluding them, revenue growth would be lower.
Client fund interest is the most rate-sensitive line. Client fund obligations were $44.42B at year end, above the $40.4B average, so the exposure grows as balances grow.
The quarter growth figure for ADP is the fiscal year growth, 6.74%, because the latest filing is a 10-K.
Our reading is that scale is ADP's main advantage. A larger client base spreads tax and compliance work across more payrolls, which fits the high Employer Services margin, but the filing does not measure this directly.
Peers
The peer set is Paychex and Workday: payroll and HR providers.
Peer figures come from each company's latest periodic filing [2][3]. Figures are derived from filed statements, and nothing here is a price view.
ADP and Paychex pay little in stock compared with Workday.
Bull, base and bear
| Case | What happens | What the filings would show |
|---|---|---|
| Bull | Bookings grow above 6% and rates stay high | Revenue growth near 7% with float income steady |
| Base | Pays per control near 1% and retention near 92% | Revenue growth near 5% to 6% |
| Bear | Rates fall and client employment shrinks | Revenue growth near 3% and lower float income |
The base case is a steady 5% to 6%: price, bookings and float offset flat employment.
The bear case is two things at once: falling rates and shrinking client headcount.
The bull case needs bookings to accelerate while rates stay near current levels.
What to watch
Watch pays per control each quarter. It is the clearest read on client employment [1].
Watch client fund interest as rates move.
Watch Employer Services retention. A drop below 92% would be the first sign of pressure.
Watch the PEO pass-throughs. If they keep growing faster than PEO fees, revenue growth will overstate profit growth by more each year.
Watch the debt ladder. The first $1.0B note, at a fixed 1.70%, is due May 15, 2028 [1], and ADP's choice to repay or refinance will show how it balances buybacks against debt.
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