Core Insights - Paychex is expected to provide a healthy dividend and is projected to reach new record share prices in 2025, with a 7% increase anticipated in Q2 following a similar rise in Q1 [1][3] - The company has consistently increased its dividend payouts for over a decade and is on track to be included in the Dividend Aristocrats index [2] - Paychex reported revenue of $1.51 billion for FQ3/CQ1 2025, reflecting a 5% year-over-year growth, driven by increases in client count and revenue per employee [3][4] Financial Performance - The operating margin improved by 180 basis points, supported by AI optimization in digital HR, payroll, and insurance services [4] - Adjusted earnings grew by 8%, surpassing revenue growth by 300 basis points and exceeding consensus estimates by 70 [4] - The annual dividend is $3.92, with a dividend yield of 2.60% and a payout ratio of 81.67% [6][7] Growth Outlook - Guidance for the core Management segment indicates solid single-digit growth, while the forecast for PEO growth and margin strength has been increased [5] - The dividend compound annual growth rate is near 10% and is expected to remain steady in 2025 [8] - Institutional ownership has risen to nearly 85%, indicating strong investor interest [9] Market Trends - Paychex is approaching a critical resistance point at $152, which, if surpassed, could lead to new all-time highs later in the year [10] - Analysts have raised their price targets due to positive guidance, although the stock currently holds a "Reduce" rating among some analysts [12]

Core Insights - Human capital management (HCM) stocks are gaining investor interest amid fears of a trade war and rising Personal Consumption Expenditures (PCE) data, which have negatively impacted broader market indexes [1] - HCM solution providers, particularly those offering payroll services, are expected to remain resilient against tariff impacts, with consistent demand driven by a stable unemployment rate around 4% [2] Paychex Insights - Paychex CEO John Gibson indicated that there are no recession signs in the company's data, with a fundamentally healthy labor market despite market uncertainties [3] - Paychex's total sales are projected to rise by 4% in fiscal 2025 and by another 5% in fiscal 2026, reaching $5.81 billion, with annual earnings expected to increase by 6% this year and another 6% in fiscal 2026 to $5.30 per share [4] ADP Insights - ADP, a leader in cloud-based HCM solutions, is forecasted to see its top line expand by 6% in fiscal years 2025 and 2026, exceeding $21 billion, with EPS projected to rise by 8% in fiscal 2025 and by 9% in fiscal 2026 to $10.82 [6] Stock Performance - Paychex and ADP shares have increased by 7% and 3% respectively in 2025, providing a defensive hedge for investors as broader indexes have faced declines, with the S&P 500 down 4% year-to-date and the Nasdaq down 10% [9] Cintas Insights - Cintas, while not a payroll service provider, has attracted investor interest due to its growth narrative, with its stock up 11% year-to-date, driven by demand for its specialized business services [10] - Cintas has consistently exceeded earnings expectations and has seen over 300% gains in stock performance over the last five years [11] Conclusion - Monitoring payroll companies like Paychex and ADP is crucial for insights into economic conditions and potential recession risks, while Cintas may also provide valuable economic indicators [14]

Financial Performance - Total revenue increased by 5% to $1,509 million in Q3 FY25 compared to $1,439 million in Q3 FY24[7] - Adjusted operating income increased by 9% to $708 million in Q3 FY25 compared to $650 million in Q3 FY24[7] - Adjusted diluted EPS increased by 8% to $1.49 in Q3 FY25 compared to $1.38 in Q3 FY24[7] - For the nine months ended February 28, 2025, total service revenue increased by 4% to $4,027.9 million[40] - Interest on funds held for clients decreased by 2% to $42.9 million for the three months ended February 28, 2025[40] Revenue Breakdown - Management Solutions revenue increased by 5% to $1,101 million in Q3 FY25 compared to $1,050 million in Q3 FY24[10] - PEO & Insurance Solutions revenue increased by 6% to $365 million in Q3 FY25 compared to $345 million in Q3 FY24[10] Acquisition of Paycor - Paychex announced a definitive agreement to acquire 100% of Paycor for $22.50 per share, reflecting approximately $4.1 billion of enterprise value[16] - The acquisition is expected to close in April 2025 and is expected to be accretive to adjusted diluted EPS in fiscal 2026[17,18] - Including Paycor, the company expects revenue growth of 10% to 12% in fiscal 4Q25, with a neutral impact to adjusted diluted EPS[17] Fiscal Year 2025 Outlook (Excluding Paycor) - Total revenue is expected to grow by 4.0% - 5.5% year-over-year[37] - Adjusted diluted EPS is expected to grow by 5% - 7% year-over-year[37]

Core Insights - Paychex reported $1.51 billion in revenue for the quarter ended February 2025, marking a year-over-year increase of 4.8% and an EPS of $1.49 compared to $1.38 a year ago, with a revenue surprise of +0.03% and an EPS surprise of +0.68% over consensus estimates [1] Financial Performance - Average investment balance for funds held for clients was $5.12 billion, exceeding the estimated $4.98 billion [4] - Average interest rates earned on funds held for clients stood at 3.4%, matching the average estimate [4] - Average investment balance for corporate cash equivalents and investments was $1.54 billion, slightly above the $1.50 billion estimate [4] - Average interest rates earned on corporate cash equivalents and investments were 4.3%, below the estimated 4.5% [4] - Revenue from interest on funds held for clients was $42.90 million, surpassing the average estimate of $40.82 million, but reflecting a year-over-year decline of -2.3% [4] - Total service revenue was reported at $1.47 billion, consistent with the average estimate and showing a year-over-year increase of +5.1% [4] - Revenue from PEO and Insurance Services was $365.40 million, slightly below the average estimate of $371.35 million, with a year-over-year increase of +5.8% [4] - Revenue from Management Solutions was $1.10 billion, aligning with the average estimate and reflecting a year-over-year change of +4.8% [4] Stock Performance - Paychex shares have returned -4.6% over the past month, compared to a -2.9% change in the Zacks S&P 500 composite [3] - The stock currently holds a Zacks Rank 3 (Hold), indicating potential performance in line with the broader market in the near term [3]

Financial Performance - Total service revenue for the three months ended February 28, 2025, was $1,466.1 million, a 5% increase from $1,395.4 million in the prior year[106] - Net income for the nine months ended February 28, 2025, reached $1,360.1 million, reflecting a 4% increase compared to $1,310.5 million in the prior year[106] - Adjusted diluted earnings per share for the three months ended February 28, 2025, was $1.49, an 8% increase from $1.38 in the prior year[106] - Operating income for the nine months ended February 28, 2025, was $1,776.6 million, a 5% increase from $1,692.3 million in the prior year[106] - Total revenue for the three months ended February 28, 2025, was $1,509.0 million, a 5% increase from $1,439.3 million in the prior year[106] - Net income for Q3 2025 was $519.3 million, reflecting a 4% increase from $498.6 million in Q3 2024[120] - Adjusted diluted earnings per share rose to $1.49, an 8% increase from $1.38 in Q3 2024[120] - EBITDA for Q3 2025 was $734.9 million, a 6% increase from $694.6 million in Q3 2024[120] Revenue Breakdown - Management Solutions revenue for the three months ended February 28, 2025, was $1,100.7 million, a 5% increase from $1,049.9 million in the prior year[107] - Management Solutions revenue was $1.1 billion for Q3 2025, up 5%, and $3.0 billion for the nine months, up 3%[111] - PEO and Insurance Solutions revenue reached $365.4 million for Q3 2025, a 6% increase, and $1.0 billion for the nine months, a 7% increase[111] Expenses and Income - Total expenses increased 4% to $817.2 million for Q3 2025 and 3% to $2.4 billion for the nine months[112] - Operating income rose 6% to $691.8 million for Q3 2025 and 5% to $1.8 billion for the nine months[114] - Adjusted operating income increased 9% to $708.5 million for Q3 2025 and 6% to $1.8 billion for the nine months[114] Tax and Dividends - The effective income tax rate for the three months ended February 28, 2025, was 24.3%, slightly down from 24.4% in the prior year[107] - Dividends paid to stockholders increased by 10% to $353.0 million for the three months ended February 28, 2025, compared to $320.4 million in the prior year[106] Acquisition Plans - The company plans to acquire Paycor for $4.1 billion, with the transaction expected to close in April 2025[104] - The company entered into a definitive agreement to acquire Paycor for $22.50 per eligible share, with the acquisition expected to close in April 2025[138] - Acquisition-related costs amounted to $16.7 million in Q3 2025, primarily related to the pending Paycor acquisition[117] - Acquisition-related costs recognized for the Paycor acquisition were $16.7 million for Q3 2025[120] Cash Flow and Investments - For the nine months ended February 28, 2025, net cash provided by operating activities was $1,557.1 million, a decrease of $118.9 million compared to the prior year[142] - The company reported net cash used in investing activities of $281.7 million for the nine months ended February 28, 2025, an increase of $163.9 million compared to the prior year[142] - Total corporate investments, including cash and restricted cash, amounted to $1.7 billion as of February 28, 2025[124] - The company has $2.0 billion in unused capacity under unsecured credit facilities as of February 28, 2025[124] - A Bridge Loan Commitment of up to $3.5 billion was established for the acquisition of Paycor, with no borrowings under this commitment as of February 28, 2025[132] Interest Rates and Risks - Average interest rates earned on funds held for clients were 3.4% for Q3 2025, down from 3.5% in the prior year[109] - The average interest rate earned on combined funds held for clients and corporate cash equivalents was 3.7% for the nine months ended February 28, 2025, compared to 3.8% for the prior year[150] - Company is exposed to interest rate risk through recurring credit facilities, which could lead to increased interest expenses if rates rise[160] - As of February 28, 2025, $2.1 billion of AFS securities had fair values below amortized cost, with gross unrealized losses of $79.1 million attributed to interest rate changes[161] Financial Monitoring and Accounting - The company maintains an ongoing monitoring system for financial institutions to minimize potential risk exposure to cash and investment balances[163] - There have been no material changes in critical accounting policies and estimates used to prepare consolidated financial statements[164] - Recent accounting pronouncements have been adopted and discussed in the Notes to Consolidated Financial Statements[165] - Market risk factors are detailed under Management's Discussion and Analysis of Financial Condition and Results of Operations[166] - Key accounting estimates include revenue recognition, goodwill, and impairment of long-lived assets[167]

Paychex, Inc. (NASDAQ:PAYX) Q3 2025 Results Conference Call March 26, 2025 9:30 AM ET Company Participants Bob Schrader - Chief Financial Officer John Gibson - Chief Executive Officer Conference Call Participants Daniel Maxwell - William Blair Mark Marcon - Baird Pete Christiansen - Citi Jared Levine - TD Cowen Bryan Keane - Deutsche Bank Ramsey El-Assal - Barclays James Faucette - Morgan Stanley Will Qi - RBC Capital Markets Kartik Mehta - Northcoast Research Tien-Tsin Huang - JPMorgan Samad Samana - Jeffe ...

Core Viewpoint - Paychex reported mixed earnings results, with a slight beat on earnings per share but a miss on sales, while the stock price increased significantly despite concerns about future profitability [1][2][4]. Group 1: Earnings Performance - Paychex's sales grew by 5% year over year in Q3, while adjusted earnings per share increased by 8%, exceeding expectations [2]. - GAAP earnings per share rose by only 4% to $1.43, indicating slower growth compared to the adjusted figures [2]. Group 2: Acquisition Update - The waiting period for Paychex's acquisition of Paycor has expired without government objection, allowing the acquisition to proceed as planned, with a probable closing in April [3]. Group 3: Future Guidance - Management did not provide specific earnings guidance for fiscal Q4 but indicated that adjusted operating margins increased by 180 basis points to 46.9% in Q3, with expectations of a decline to around 43% in Q4 [4]. - The company maintains its previous guidance for fiscal 2025, forecasting earnings growth of 4% to 5.5% and adjusted earnings growth of 5% to 7%, along with operating margins of 42% to 43% [5][6].

Core Insights - Paychex, Inc. (PAYX) reported strong third-quarter fiscal 2025 results, with earnings and revenues exceeding the Zacks Consensus Estimate [1][2] Financial Performance - Fiscal third-quarter earnings were $1.49 per share, an 8% increase from the previous year, and slightly above the consensus estimate [2] - Total revenues reached $1.5 billion, surpassing the consensus estimate by a small margin and reflecting a 4.8% year-over-year growth [2] - Revenue from the Management Solutions segment increased by 5% year over year to $1.1 million, meeting expectations [5] - Professional employer organization (PEO) and Insurance Solutions revenues were $365.4 million, up 6% from the previous year, but fell short of the expected $372.6 million [5] - Service revenues grew by 5% year over year to $1.5 billion, aligning with projections [6] - Interest on funds held for clients decreased by 2% year over year to $42.9 million, exceeding the forecast of $38.4 million [6] - EBITDA was reported at $734.9 million, a 6% increase from the previous year, but below the expected $755.1 million [6] - Operating income rose by 6% year over year to $691.8 million, missing the projection of $707.6 million [6] - The operating margin improved to 45.8%, up 70 basis points from the previous year, surpassing the estimate of 42.8% [6] Balance Sheet & Cash Flow - At the end of the third quarter, cash and cash equivalents stood at $1.6 billion, up from $1.2 billion in the previous quarter [7] - Long-term debt was reported at $799 million, slightly higher than $798.9 million in the second quarter [7] - Cash generated from operating activities amounted to $716 million, with capital expenditures totaling $48.7 million [8] Guidance - For fiscal 2025, Paychex anticipates interest on funds held for clients to be between $145 million and $155 million, and other income to be between $30 million and $35 million [9]

Core Viewpoint - Paychex reported quarterly earnings of $1.49 per share, exceeding the Zacks Consensus Estimate of $1.48 per share, and showing an increase from $1.38 per share a year ago, indicating a positive earnings surprise of 0.68% [1] Financial Performance - The company achieved revenues of $1.51 billion for the quarter ended February 2025, surpassing the Zacks Consensus Estimate by 0.03% and up from $1.44 billion year-over-year [2] - Over the last four quarters, Paychex has consistently surpassed consensus EPS estimates four times and topped revenue estimates three times [2] Stock Performance - Paychex shares have increased approximately 2.8% since the beginning of the year, contrasting with the S&P 500's decline of -1.8% [3] Future Outlook - The company's earnings outlook is crucial for investors, as it includes current consensus earnings expectations for upcoming quarters and any recent changes to these expectations [4] - The current consensus EPS estimate for the next quarter is $1.21 on revenues of $1.37 billion, and for the current fiscal year, it is $4.99 on revenues of $5.52 billion [7] Industry Context - The Internet - Software industry, to which Paychex belongs, is currently ranked in the top 32% of over 250 Zacks industries, suggesting a favorable environment for stock performance [8]

Financial Data and Key Metrics Changes - Total revenue for the third quarter increased by 5% to $1.5 billion, with a 6% growth excluding the impact of the discontinued ERTC program [22][24] - Diluted earnings per share rose by 4% to $1.43, while adjusted diluted earnings per share grew by 8% to $1.49 [24] - Adjusted operating margins increased by approximately 180 basis points to 46.9% due to improved productivity and cost discipline [24] Business Line Data and Key Metrics Changes - Management Solutions revenue increased by 5% to $1.1 billion, driven by growth in the number of clients and higher revenue per client [23] - PEO and Insurance Solutions revenue grew by 6% to $365 million, primarily due to an increase in average worksite employees [23] - Interest on funds held for clients decreased by 2% to $43 million, attributed to lower average interest rates [23] Market Data and Key Metrics Changes - Client retention improved, with losses down across all employee size segments, and revenue retention remained above pre-pandemic levels [14] - The pace of U.S. job growth has moderated, with customer employment levels softer than expected due to weather-related challenges and lower bonus checks [19][44] - Year-to-date checks per client remained flat compared to the prior year, indicating stable labor market conditions [19] Company Strategy and Development Direction - The company is focused on integrating the acquisition of Paycor, which is expected to strengthen its competitive position and enhance its HCM portfolio [10][11] - Plans to operate Paycor as a standalone business unit while leveraging synergies to achieve cost efficiencies exceeding $80 million [13][29] - Continued investments in automation and technology are aimed at boosting efficiency and driving innovation in HR solutions [9][15] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the acquisition of Paycor and its potential to be accretive to adjusted earnings per share next fiscal year [29] - The macro environment remains stable, with strong retention performance and improvements in client losses year over year [84] - Management acknowledged the challenges posed by natural disasters and economic fluctuations but remains confident in the company's value proposition [19][83] Other Important Information - The company was named one of Fortune's most innovative companies for the third consecutive year, reflecting its commitment to becoming a digitally driven HR leader [15] - The company has made significant progress in integrating Paycor and is focused on ensuring a smooth transition for clients and employees [60] Q&A Session Summary Question: Updates on preference between ASO and PEO models - Management noted that both ASO and PEO models are performing strongly, with no significant switch in preference observed [35][37] Question: Client hiring lower than expected - Management indicated that hiring was broadly based, with some specific impacts from natural disasters in California [43] Question: Expectations for revenue synergies from Paycor acquisition - Management is optimistic about revenue synergies but emphasized the need to finalize integration before providing detailed guidance [56][58] Question: Changes in demand environment - Management reported consistent demand levels, with strong bookings and a solid pipeline going into Q4 [82] Question: Pricing power in a potential macro downturn - Management expressed confidence in their pricing power, indicating that they can maintain strong revenue per client even in downturns [96][98]