Paychex(US:PAYX)2026-03-26 20:05Revenue Growth - Total service revenue for the third quarter reached $1.75 billion, a 20% increase compared to $1.47 billion in the prior year[125] - Total revenue for the nine months ended February 28, 2026, was $4.91 billion, reflecting an 18% increase from $4.14 billion in the prior year[125] - Management Solutions revenue was $1.35 billion for the third quarter, up 23% from $1.10 billion in the prior year[126] - PEO and Insurance Solutions revenue increased by 9% to $397.5 million for the third quarter, compared to $365.4 million in the prior year[126] - Management Solutions revenue increased by 24% to $8,230.7 million for the three months ended February 28, 2026, compared to $6,658.2 million in the prior year[128] Profitability - Net income for the third quarter was $560.3 million, an 8% increase from $519.3 million in the prior year[126] - Adjusted diluted earnings per share rose by 15% to $1.71, compared to $1.49 in the prior year[125] - Operating income for the third quarter was $792.0 million, a 14% increase from $691.8 million in the prior year[126] - Adjusted operating income increased by 22% to $863.2 million for the third quarter and by 19% to $2,138.9 million for the nine months[138] Expenses and Costs - Total expenses increased by 24% to $1,016.9 million for the third quarter and by 27% to $3,000.7 million for the nine months, primarily due to compensation-related expenses and acquisition-related costs[132] - Interest expense rose by $45.5 million to $68.1 million for the third quarter, primarily due to incremental debt from the acquisition of Paycor[136] Taxation - The effective income tax rate for the third quarter was 24.2%, slightly down from 24.3% in the prior year[126] - The effective income tax rate was 24.2% for the third quarter and 23.7% for the nine months, slightly lower than the previous year's rates[137] Cash Flow and Liquidity - For the nine months ended February 28, 2026, net cash provided by operating activities was $1,975.8 million, an increase of $418.7 million compared to $1,557.1 million for the same period in 2025[159] - The company had $2.0 billion of unused capacity under its unsecured credit facilities as of February 28, 2026, indicating strong liquidity[141] - The company reported net cash used in investing activities of $925.0 million for the nine months ended February 28, 2026, an increase of $643.3 million compared to $281.7 million in 2025[159] Investments and Securities - Net unrealized gains on available for sale securities improved to $7.2 million as of February 28, 2026, compared to a loss of $53.6 million in the prior year[129] - The fair value of AFS securities was $4.5 billion as of February 28, 2026, with a weighted-average yield-to-maturity of 3.6%[173] - The company has $1.6 billion of AFS securities with fair values below amortized cost, but believes principal and interest will be collected as per contractual terms[175] Shareholder Returns - Dividends paid to stockholders increased by 10% to $388.0 million for the third quarter[125] - Total cash dividends per common share increased to $3.24 for the nine months ended February 28, 2026, compared to $2.94 for the same period in 2025[159] - Cash used to repurchase 2.9 million shares of common stock at a weighted average price of $125.16 per share during the nine months[163] Acquisitions - The acquisition of Paycor contributed approximately 19% to Management Solutions revenue for the third quarter[127] - The company incurred $13.2 million in acquisition-related costs for the three and nine months ended February 28, 2025, primarily related to the Paycor acquisition[139] Interest Rates and Financial Management - The average interest rate earned on combined funds held for clients and corporate cash equivalents was 3.6%, slightly down from 3.7% in the prior year[165] - A 25-basis-point change in taxable interest rates would affect earnings by approximately $5.0 million to $5.5 million after taxes over a twelve-month period[169] - The company executed interest rate swaption contracts with an aggregate notional amount of $3.0 billion to manage exposure to interest rate fluctuations related to the acquisition financing[152] Client Funds and Obligations - Average investment balances for funds held for clients increased by 26% to $6,464.8 million for the three months ended February 28, 2026[128] - Client fund obligations liability will vary based on the timing of cash collections and remittances, impacting financing activities[160]