Paychex(PAYX) - 2025 Q3 - Quarterly Report

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]