Paychex(PAYX) - 2026 Q1 - Quarterly Results

First Quarter Fiscal 2026 Results Overview Paychex delivered robust double-digit revenue growth in the first quarter of fiscal 2026, driven by the Paycor acquisition and strong segment performance, leading to increased adjusted operating income and an updated full-year earnings outlook Key Financial Highlights Paychex reported a strong start to fiscal 2026 with robust double-digit revenue growth, driven by the integration of Paycor and sustained demand for HCM solutions. The company also raised its full-year earnings outlook | In millions, except per share amounts | August 31, 2025 | August 31, 2024 | Change | | :---------------------------------- | :-------------- | :-------------- | :----- | | Total revenue | $1,540.0 | $1,318.5 | 17 % | | Operating income | $541.9 | $546.7 | (1) % | | Adjusted operating income | $626.7 | $546.7 | 15 % | | Diluted earnings per share | $1.06 | $1.18 | (10) % | | Adjusted diluted earnings per share | $1.22 | $1.16 | 5 % | - CEO John Gibson highlighted robust double-digit revenue growth and continued progress in integrating Paycor, noting early realization of cost and revenue synergies and significant cross-selling potential[2] - Strategic investments in AI and technology are driving innovation, elevating client experience, and delivering operational efficiency, positioning Paychex to navigate the complex labor and regulatory landscape[2] - Delivered Strong Double-Digit Revenue Growth in the First Quarter[3] - Raises Full Year Earnings Outlook[3] - Successfully Completed Key Paycor Integration Milestones[3] Segmental Revenue Performance Revenue growth was primarily driven by Management Solutions, significantly boosted by the Paycor acquisition, alongside steady growth in PEO and Insurance Solutions and increased interest on client funds | Revenue Segment | August 31, 2025 | August 31, 2024 | Change | | :------------------------------ | :-------------- | :-------------- | :----- | | Management Solutions | $1.2 billion | | 21 % | | PEO and Insurance Solutions | $329.1 million | | 3 % | | Interest on funds held for clients | $47.6 million | | 27 % | - Management Solutions revenue increased 21% to $1.2 billion, with Paycor contributing approximately 17% to this growth, driven by an increase in clients (primarily from Paycor) and higher revenue per client due to Paycor's upmarket base, price realization, and product penetration[4] - PEO and Insurance Solutions revenue increased 3% to $329.1 million, attributed to growth in average PEO worksite employees and an increase in PEO insurance revenues[9] - Interest on funds held for clients increased 27% to $47.6 million, primarily due to higher average investment balances resulting from the Paycor acquisition[9] Expense and Profitability Analysis Total expenses rose significantly due to the Paycor acquisition and strategic investments, leading to a slight GAAP operating income decrease but a substantial adjusted operating income increase. Interest expense also surged due to acquisition financing, while the effective tax rate slightly decreased | Metric | August 31, 2025 | August 31, 2024 | Change | | :-------------------------- | :-------------- | :-------------- | :----- | | Total expenses | $998.1 million | | 29 % | | Operating income | $541.9 million | $546.7 million | (1) % | | Adjusted operating income | $626.7 million | $546.7 million | 15 % | | Operating margin | 35.2% | 41.5% | | | Adjusted operating margin | 40.7% | 41.5% | | | Interest expense | $68.2 million | $9.6 million | n/m | | Effective income tax rate | 22.9% | 23.3% | | | Diluted earnings per share | $1.06 | $1.18 | (10) % | | Adjusted diluted earnings per share | $1.22 | $1.16 | 5 % | - Total expenses increased 29% to $998.1 million, primarily due to compensation-related expenses, amortization of intangible assets, and higher technology, selling, and marketing investments, all driven by the Paycor acquisition and strategic initiatives[5][9] - Adjusted operating income, excluding $84.1 million of Paycor acquisition-related costs, grew 15% to $626.7 million, demonstrating core business strength despite a 1% GAAP operating income decrease[5] - Interest expense increased significantly by $58.6 million to $68.2 million, mainly due to incremental debt issued to finance the Paycor acquisition[6] Financial Position and Capital Allocation The company maintained a strong financial position with substantial cash flow, while strategically utilizing borrowings for acquisitions and returning capital to shareholders through dividends and share repurchases Liquidity and Balance Sheet Paychex maintained a strong financial position and cash flow generation, with substantial cash and investments, alongside increased borrowings primarily for the Paycor acquisition - Cash, restricted cash, and total corporate investments: $1.7 billion as of August 31, 2025[10] - Short-term and long-term borrowings, net of debt issuance costs: $5.0 billion as of August 31, 2025[10] - Cash flow from operations: $718.4 million for the first quarter[10] Shareholder Returns The company returned capital to stockholders through cumulative dividends and share repurchases during the first quarter - Paid cumulative dividends of $1.08 per share, totaling $389.1 million[10] - Repurchased 1.1 million shares of common stock for $160.1 million[10] Non-GAAP Financial Measures Paychex provides non-GAAP financial measures to offer additional insights into core business performance by excluding acquisition-related costs and certain tax benefits, complementing GAAP results Reconciliation and Explanation Paychex provides non-GAAP financial measures, including adjusted operating income, net income, diluted EPS, and EBITDA, to offer additional insights into core business performance by excluding acquisition-related costs and certain tax benefits. These measures are not GAAP substitutes but are used in conjunction with GAAP results | $ in millions, except per share amounts | August 31, 2025 | August 31, 2024 | Change | | :-------------------------------------- | :-------------- | :-------------- | :----- | | Operating income | $541.9 | $546.7 | (1) % | | Acquisition-related costs | 84.8 | — | | | Adjusted operating income | $626.7 | $546.7 | 15 % | | Adjusted operating margin | 40.7% | 41.5% | | | Net income | $383.8 | $427.4 | (10) % | | Acquisition-related costs | 84.8 | — | | | Income tax benefit for acquisition-related costs | (20.6) | — | | | Excess tax benefits related to employee stock-based compensation payments | (7.2) | (6.2) | | | Adjusted net income | $440.8 | $421.2 | 5 % | | Diluted earnings per share | $1.06 | $1.18 | (10) % | | Acquisition-related costs | 0.23 | — | | | Income tax benefit for acquisition-related costs | (0.06) | — | | | Excess tax benefits related to employee stock-based compensation payments | (0.02) | (0.02) | | | Adjusted diluted earnings per share | $1.22 | $1.16 | 5 % | | EBITDA | $656.3 | $585.8 | 12 % | | Acquisition-related costs | 23.7 | — | | | Adjusted EBITDA | $680.0 | $585.8 | 16 % | - Acquisition-related costs for the first quarter totaled $84.8 million, including $61.1 million in amortization of acquired intangibles, $18.7 million in compensation costs, and $5.0 million in other professional service fees related to the Paycor acquisition[11] - Non-GAAP measures are presented as indicators of core business performance and should not be considered substitutes for U.S. GAAP measures[11][12] Business Outlook and Corporate Information Paychex updated its fiscal 2026 guidance, raising adjusted diluted EPS expectations, and provides comprehensive investor resources and company information Fiscal 2026 Guidance Update Paychex has updated its business outlook for fiscal 2026, raising the anticipated growth range for adjusted diluted earnings per share, while other guidance aspects remain unchanged - Adjusted diluted earnings per share is now anticipated to grow in the range of 9% to 11% for fiscal 2026[15] - Other aspects of the fiscal 2026 guidance remain unchanged[15] - The business outlook incorporates current assumptions and market conditions and excludes acquisition-related costs, with potential alterations due to macroeconomic environment changes[13] Investor Resources Paychex provides access to its financial reports, earnings call webcasts, and investor information through its investor relations portal - Anticipates filing Form 10-Q for the first quarter within the next couple of days, available at https://investor.paychex.com[13](index=13&type=chunk) - Earnings Conference Call webcast scheduled for September 30, 2025, at 9:30 a.m. Eastern Time, accessible at https://investor.paychex.com, with replay available[14] - Investor Relations contact: Rachel White at (513) 954-7388 or investors@paychex.com[16] - Media Relations contact: Tracy Volkmann at (585) 387-6705 or tvolkmann@paychex.com[16] About Paychex Paychex, Inc. is a leading human capital management (HCM) company, offering comprehensive, flexible, and innovative HR solutions to approximately 800,000 customers in the U.S. and Europe, serving one out of every 11 American private sector workers - Paychex is a digitally driven HR leader reimagining how companies address workforce needs with comprehensive, flexible, and innovative HCM solutions for organizations of all sizes[17] - The company pays one out of every 11 American private sector workers and serves approximately 800,000 customers in the U.S. and Europe[17] Cautionary Note Regarding Forward-Looking Statements This section outlines the forward-looking nature of certain statements, emphasizing inherent risks and uncertainties that could cause actual results to differ materially from projections Nature of Forward-Looking Statements This section clarifies that certain statements in the press release are forward-looking, based on current beliefs and expectations, and are subject to various risks and uncertainties that could cause actual results to differ materially - Forward-looking statements are identified by words like "expect," "outlook," "will," "guidance," and similar phrases, covering matters not historical facts, such as Paycor integration, operating performance, revenue growth, and earnings projections[18] - These statements are not assurances of future performance and are subject to known and unknown uncertainties, risks, and changes in circumstances, many outside the company's control, meaning actual outcomes may differ materially[19] Key Risk Factors The company identifies several factors that could materially affect its actual results, including technological changes, software defects, cybersecurity risks, acquisition integration challenges, regulatory compliance, and macroeconomic impacts - Ability to keep pace with technology changes or provide timely enhancements to solutions[19] - Software defects, undetected errors, and development delays[20] - Cyberattacks, security vulnerabilities, data security/privacy leaks, and business interruptions[20] - Risks related to acquisitions and business integration, specifically Paycor[20] - Changes in health insurance and workers' compensation rates and claim trends[20] - Impact of macroeconomic factors on the U.S. and global economy, especially small- and medium-sized business clients[21] - Volatility in the political and economic environment, including inflation and interest rate changes[21] - Ability to comply with U.S. and foreign laws and regulations, including data privacy and artificial intelligence laws[21] Unaudited Consolidated Financial Statements The unaudited consolidated financial statements detail the company's income, financial position, and cash flows, reflecting revenue growth, increased expenses, and strategic capital movements Consolidated Statements of Income The unaudited consolidated statements of income show a 17% increase in total revenue for the three months ended August 31, 2025, compared to the prior year, driven by Management Solutions and interest on funds held for clients. However, net income and diluted EPS decreased due to higher expenses and interest costs | In millions, except per share amounts | August 31, 2025 | August 31, 2024 | Change | | :---------------------------------- | :-------------- | :-------------- | :----- | | Revenue: | | | | | Management Solutions | $1,163.3 | $961.7 | 21 % | | PEO and Insurance Solutions | 329.1 | 319.3 | 3 % | | Total service revenue | 1,492.4 | 1,281.0 | 17 % | | Interest on funds held for clients | 47.6 | 37.5 | 27 % | | Total revenue | 1,540.0 | 1,318.5 | 17 % | | Expenses: | | | | | Cost of service revenue | 413.8 | 380.0 | 9 % | | Selling, general and administrative expenses | 584.3 | 391.8 | 49 % | | Total expenses | 998.1 | 771.8 | 29 % | | Operating income | 541.9 | 546.7 | (1) % | | Interest expense | (68.2) | (9.6) | n/m | | Other income, net | 23.8 | 20.0 | 19 % | | Income before income taxes | 497.5 | 557.1 | (11) % | | Income taxes | 113.7 | 129.7 | (12) % | | Net income | $383.8 | $427.4 | (10) % | | Basic earnings per share | $1.07 | $1.19 | (10) % | | Diluted earnings per share | $1.06 | $1.18 | (10) % | Consolidated Balance Sheets The unaudited consolidated balance sheets as of August 31, 2025, show an increase in total assets, primarily driven by corporate investments and goodwill, while total liabilities also increased, notably in long-term borrowings and client fund obligations | In millions, except per share amounts | August 31, 2025 | May 31, 2025 | | :---------------------------------- | :-------------- | :----------- | | ASSETS | | | | Cash and cash equivalents | $809.0 | $1,628.6 | | Corporate investments | 861.9 | 34.5 | | Funds held for clients | 4,927.4 | 4,813.3 | | Total current assets | 9,040.0 | 8,916.5 | | Intangible assets, net | 1,886.8 | 1,947.3 | | Goodwill | 4,523.6 | 4,514.1 | | Total assets | $16,663.0 | $16,564.1 | | LIABILITIES | | | | Client fund obligations | 4,948.4 | 4,867.0 | | Total current liabilities | 7,128.7 | 6,956.3 | | Long-term borrowings, net | 4,550.3 | 4,548.4 | | Total liabilities | 12,692.4 | 12,436.1 | | Total stockholders' equity | 3,970.6 | 4,128.0 | | Total liabilities and stockholders' equity | $16,663.0 | $16,564.1 | Consolidated Statements of Cash Flows The unaudited consolidated statements of cash flows indicate strong cash provided by operating activities, but significant cash used in investing activities due to purchases of available-for-sale securities and cash used in financing activities for dividends and share repurchases, resulting in a net decrease in cash, restricted cash, and equivalents | In millions | August 31, 2025 | August 31, 2024 | | :---------------------------------------- | :-------------- | :-------------- | | OPERATING ACTIVITIES | | | | Net cash provided by operating activities | $718.4 | $546.1 | | INVESTING ACTIVITIES | | | | Purchases of AFS securities | (3,731.9) | (1,029.7) | | Proceeds from sales and maturities of AFS securities | 2,547.3 | 1,013.0 | | Net cash used in investing activities | (1,302.7) | (110.0) | | FINANCING ACTIVITIES | | | | Net change in client fund obligations | 81.4 | (25.1) | | Dividends paid | (389.1) | (353.4) | | Repurchases of common shares | (160.1) | (104.0) | | Net cash used in financing activities | (515.4) | (485.0) | | Net change in cash, restricted cash, and equivalents | (1,099.7) | (48.9) | | Cash, restricted cash, and equivalents, end of period | $1,634.6 | $1,848.1 |