Paychex(US:PAYX)2025-12-22 21:03Financial Performance - Total service revenue for the second quarter increased by 17% to $1,503.3 million compared to $1,280.8 million in the prior year period[119]. - Total revenue for the six months ended November 30, 2025, rose by 18% to $3,097.6 million from $2,635.4 million in the prior year[119]. - Adjusted operating income for the second quarter was $649.0 million, reflecting a 21% increase from $538.1 million in the prior year[119]. - Net income for the second quarter decreased by 4% to $395.4 million compared to $413.4 million in the prior year[120]. - Diluted earnings per share for the second quarter was $1.10, down 4% from $1.14 in the prior year[120]. - Management Solutions revenue increased by 21% to $1,166.4 million for the second quarter compared to $962.9 million in the prior year[120]. - Operating income increased by 6% to $571.9 million for the second quarter, while adjusted operating income grew by 21% to $649.0 million[126]. - Adjusted net income for the first half of 2025 was $895.4 million, an 8% increase from $832.2 million in the first half of 2024[130]. - Adjusted diluted earnings per share rose to $2.48 in the first half of 2025, up 8% from $2.30 in the first half of 2024[130]. - EBITDA for Q2 2025 was $681.3 million, reflecting an 18% increase from $579.1 million in Q2 2024[130]. - Adjusted EBITDA for the first half of 2025 reached $1,378.5 million, an 18% increase from $1,164.9 million in the first half of 2024[130]. Expenses and Costs - Total expenses for the second quarter increased by 27% to $985.7 million compared to $778.8 million in the prior year[120]. - Total expenses rose by 27% to $985.7 million for the second quarter, driven by increased compensation-related expenses and acquisition-related costs[125]. - Acquisition-related costs amounted to $77.1 million for the second quarter, reflecting expenses related to the integration of Paycor[128]. Client Funds and Interest - Interest on funds held for clients rose by 51% to $54.3 million in the second quarter, up from $36.1 million in the prior year[120]. - Funds held for clients increased by 26% to $5,353.2 million for the three months ended November 30, 2025, compared to $4,252.3 million in the prior year[121]. - Average interest rates earned on funds held for clients remained stable at 3.5% for both the current and prior year periods[121]. - Interest on funds held for clients increased by 51% to $54.3 million for the second quarter, attributed to higher average investment balances from the Paycor acquisition[124]. - The average interest rate earned on combined funds held for clients and corporate cash equivalents was 3.7%, slightly down from 3.8% in the prior year[157]. Acquisitions - The acquisition of Paycor was completed on April 14, 2025, enhancing the company's HR technology and advisory solutions[117]. - Management Solutions revenue reached $1.2 billion for the second quarter, reflecting a 21% increase year-over-year, with Paycor contributing approximately 17% to this growth[124]. Tax and Rates - The effective income tax rate remained stable at 24.0% for the second quarter compared to the prior year[120]. - The effective income tax rate was 24.0% for the second quarter, consistent with the prior year period[129]. - The Federal Funds rate decreased to a range of 3.50% to 3.75% effective December 11, 2025, down from 4.00% as of November 30, 2025[123]. - The Federal Funds rate was in the range of 3.75% to 4.00% as of November 30, 2025, and was subsequently decreased to a range of 3.50% to 3.75% effective December 11, 2025[160]. Investments and Cash Flow - Total corporate investments, including cash and restricted cash, amounted to $1.6 billion as of November 30, 2025[132]. - The company had $2.0 billion in unused capacity under unsecured credit facilities as of November 30, 2025[132]. - Long-term borrowings totaled $5.0 billion, with short-term borrowings at $18.2 million as of November 30, 2025[132]. - Net cash provided by operating activities for the six months ended November 30, 2025, was $1,163.3 million, an increase of $322.2 million compared to $841.1 million in the prior year[149]. - Net cash used in investing activities increased to $926.4 million from $302.7 million, reflecting a change of $623.7 million[149]. - Cash dividends per common share increased to $2.16 from $1.96, representing a growth of approximately 10.2%[149]. - The total investment portfolio is expected to average approximately $7.4 billion for the fiscal year ending May 31, 2026, with 40% in short-term securities and 60% in AFS securities[163]. - As of November 30, 2025, the fair value of AFS securities was $4.5 billion, with a weighted-average yield-to-maturity of 3.6%[165]. - The net unrealized losses on the combined funds held for clients and corporate AFS securities were $9.0 million as of November 30, 2025, down from $53.6 million as of May 31, 2025[164]. - A 25-basis-point change in taxable interest rates is expected to affect earnings by approximately $5.5 million to $6.0 million after taxes over a twelve-month period[162]. - As of November 30, 2025, $1.9 billion of AFS securities had fair values below amortized cost, attributed to changes in interest rates rather than credit risk[167]. Accounting and Risk Factors - Recently adopted accounting pronouncements are discussed in Note A of the Notes to Consolidated Financial Statements (Unaudited) in Item 1 of Form 10-Q[172]. - Recently issued accounting pronouncements are also detailed in Note A of the Notes to Consolidated Financial Statements (Unaudited) in Item 1 of Form 10-Q[172]. - Market risk factors are addressed under Item 2 – Management's Discussion and Analysis of Financial Condition and Results of Operations[173].