Core Insights - Total revenue increased 20% year-over-year to $1.8 billion, with management solutions revenue up 23% to $1.4 billion, largely driven by the Paycor acquisition [3][7] - Total expenses rose 24% to just over $1.0 billion, primarily due to the Paycor acquisition, while excluding Paycor, expenses grew in the low single digits [1] - The company reported an operating income margin of 43.8%, with an adjusted operating income margin increasing about 80 basis points to 47.7% [1][7] Financial Performance - Interest on funds held for clients increased 33% to $57 million, attributed to the addition of Paycor balances [2] - Adjusted diluted EPS increased 15% to $1.71, while diluted EPS rose 9% to $1.56 [7] - Operating cash flows were nearly $2.0 billion year-to-date, with free cash flow increasing 27% year-over-year [8] Paycor Integration and Synergies - The integration of Paycor is progressing well, with expense synergies of about $100 million largely completed and revenue synergies tracking toward the high end of the prior 30–50 basis points target [6][18] - Cross-selling is identified as a primary long-term value driver of the Paycor acquisition, with momentum in selling ASO, PEO, and retirement solutions into Paycor's client base [10] AI Initiatives - The company has expanded AI deployments to over 500 AI-powered capabilities, shifting towards proactive systems for compliance and productivity [5][14] - Internal AI deployments are aimed at enhancing productivity, particularly in payroll processing and sales [15] Market and Economic Context - The macroeconomic environment is described as stable but uncertain, with workforce levels relatively flat across the client base [4][13] - Demand for PEO services remains strong, with high single-digit growth in worksite employees and record retention rates [11]

Financial Data and Key Metrics Changes - Total revenue increased by 20% year-over-year to $1.8 billion, with management solutions revenue growing by 23% to $1.4 billion, primarily driven by product penetration and price realization [15][4] - Adjusted operating income increased by 22% year-over-year, with operating income margin at 43.8% and adjusted operating income margin rising by approximately 80 basis points to 47.7% [15][4] - Diluted earnings per share rose by 9% to $1.56, while adjusted diluted earnings per share increased by 15% to $1.71 [16] - Free cash flow generation increased by 27% year-over-year, with operating cash flows nearly reaching $2 billion year-to-date [17] Business Line Data and Key Metrics Changes - PEO and insurance solutions revenue grew by 9% to $398 million, driven by strong growth in the number of average PEO worksite employees and an increase in PEO insurance revenues [15] - The ASO and PEO worksite employee growth continued to outpace the industry, reflecting the company's value in navigating regulatory complexity [7][9] - The company reported robust revenue growth in retirement, ASO, and PEO, indicating a long secular growth runway for these businesses [7] Market Data and Key Metrics Changes - The company noted stable workforce levels among clients, supported by solutions that help manage costs and source talent in a tight labor market [4] - The demand for comprehensive advisory and benefit solutions remains strong, differentiating the company from tech-only providers [7] Company Strategy and Development Direction - The integration of Paycor is progressing well, with expectations to exceed fiscal 2026 synergy targets [9] - The company is embedding AI into its workflows to enhance productivity and client outcomes, with over 500 AI-powered capabilities now in use [10][11] - The strategic focus is on leveraging proprietary payroll data and regulatory expertise to maintain a competitive advantage while embedding AI responsibly [12] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's positioning for success in the AI era of HCM, emphasizing strong business fundamentals and a commitment to returning capital to shareholders [19] - The company anticipates fourth-quarter growth of approximately 12% with an adjusted operating margin of 41%-42% [18] - Management highlighted the importance of trust and ethical operations, noting recognition as one of the world's most ethical companies [13] Other Important Information - The company has a strong financial position with cash, restricted cash, and total corporate investments of $1.8 billion, alongside total borrowings of approximately $5 billion [16] - The company returned $463 million to shareholders this quarter and over $1.5 billion year-to-date through cash dividends and share buybacks [17] Q&A Session Summary Question: Can you elaborate on the level of organic growth in the third quarter and expectations for the fourth quarter? - Management indicated that organic growth has improved sequentially, with expectations for a similar performance in Q4, driven by easier comparisons and stronger operating performance [24][25] Question: How is the competitive environment and new sales performance during the core selling season? - Management described the competitive environment as stable, with strong performance in Q3, particularly in PEO and Paycor bookings, and noted the addition of sales headcount to capture demand [33][34] Question: Can you discuss the drivers behind the strong PEO insurance growth? - Management attributed the growth to strong underlying performance, record worksite employee retention, and successful annual enrollment, with a focus on providing affordable benefits to small business clients [51][52] Question: What are the expectations for revenue and expense synergies from the Paycor acquisition? - Management noted that expense synergies are expected to be in the $100 million range, with revenue synergies contributing significantly to growth, particularly through cross-selling opportunities [75][74]

Financial Data and Key Metrics Changes - Total revenue increased by 20% year-over-year to $1.8 billion, with management solutions revenue growing by 23% to $1.4 billion, driven by product penetration and price realization [15][4] - Adjusted operating income increased by 22% year-over-year, with operating income margin at 43.8% and adjusted operating income margin rising approximately 80 basis points to 47.7% [15][4] - Diluted earnings per share rose by 9% to $1.56, while adjusted diluted earnings per share increased by 15% to $1.71 [16] - Free cash flow generation increased by 27% year-over-year, with operating cash flows nearly reaching $2 billion year-to-date [17] Business Line Data and Key Metrics Changes - PEO and insurance solutions revenue increased by 9% to $398 million, primarily driven by strong growth in the number of average PEO worksite employees [15] - ASO and PEO worksite employee growth continues to outpace the industry, reflecting the company's value in navigating regulatory complexity [7] - The company reported robust revenue growth in retirement, ASO, and PEO, highlighting the durability of its business model [7] Market Data and Key Metrics Changes - The company operates in a highly regulated industry, providing a competitive advantage through compliance depth and advisory expertise [5] - Demand for comprehensive advisory and benefit solutions remains strong, differentiating the company from tech-only providers [7] Company Strategy and Development Direction - The company is focused on embedding AI into its workflows to enhance productivity and client outcomes, with over 500 AI-powered capabilities now in use [10] - The integration of Paycor is progressing well, with expectations to exceed fiscal 2026 synergy targets [9] - The company aims to leverage its proprietary payroll data and regulatory expertise to maintain a competitive moat while embedding AI responsibly [12] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's positioning for success in the AI era of HCM, emphasizing strong business fundamentals and operating margins [19] - The company anticipates fourth-quarter growth of approximately 12% with an adjusted operating margin of 41%-42% [18] - Management highlighted the importance of trust and ethical operations, as evidenced by recognition as one of the world's most ethical companies [13] Other Important Information - The company returned $463 million to shareholders this quarter and over $1.5 billion year-to-date through cash dividends and share buybacks [17] - The company was recognized for its commitment to corporate responsibility and community support [13] Q&A Session Summary Question: Can you elaborate on the level of organic growth in the third quarter and its implications for the fourth quarter? - Management noted that organic growth has improved sequentially, with expectations for a similar performance in Q4, driven by easier comparisons and stronger operating performance [24][25] Question: How is the competitive environment and new sales performance? - Management described the competitive environment as stable, with strong performance in Q3, particularly in PEO and Paycor bookings, and noted the addition of sales headcount to capture demand [33][34] Question: Can you discuss the drivers behind the strong PEO insurance growth? - Management attributed the growth to strong underlying performance, record retention rates, and successful annual enrollment, with a focus on providing affordable benefits to small businesses [51][52] Question: What are the expectations for revenue and expense synergies from the Paycor acquisition? - Management indicated that expense synergies are expected to be in the $100 million range, with revenue synergies contributing positively to growth, particularly through cross-selling opportunities [75][76]

Financial Data and Key Metrics Changes - Total revenue increased by 20% year-over-year to $1.8 billion, with management solutions revenue growing by 23% to $1.4 billion, primarily driven by product penetration and price realization [12][3] - Adjusted operating income increased by 22% year-over-year, with operating income margin at 43.8% and adjusted operating income margin rising approximately 80 basis points to 47.7% [12][14] - Diluted earnings per share rose by 9% to $1.56, while adjusted diluted earnings per share increased by 15% to $1.71 [14] Business Line Data and Key Metrics Changes - PEO and insurance solutions revenue grew by 9% to $398 million, driven by strong growth in the number of average PEO worksite employees and an increase in PEO insurance revenues [12] - Interest on funds held for clients increased by 33% to $57 million, largely due to the addition of Paycor balances [12] - The ASO and PEO worksite employee growth continues to outpace the industry, reflecting the company's value in navigating regulatory complexity [5][7] Market Data and Key Metrics Changes - The company reported high single-digit worksite employee growth in the PEO business, driven by robust demand and record retention rates [5][48] - Medical enrollment across the PEO space was up high single digits, near double digits during the annual enrollment period [50] - The competitive environment remains stable, with double-digit bookings growth in both PEO and Paycor segments [29][30] Company Strategy and Development Direction - The integration of Paycor is progressing well, with expectations to exceed fiscal 2026 synergy targets [7] - The company is embedding AI into its workflows to enhance productivity and client outcomes, with over 500 AI-powered capabilities now in use [8][10] - The focus on advisory and compliance solutions differentiates the company from tech-only providers, reinforcing its competitive advantage [4][5] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's positioning for sustained growth in the AI era of HCM, emphasizing strong business fundamentals and cash flow generation [17] - The company anticipates fourth-quarter growth of approximately 12% with an adjusted operating margin of 41%-42% [16] - Management highlighted the importance of trust and ethical operations, noting recognition as one of the world's most ethical companies [10] Other Important Information - The company returned $463 million to shareholders this quarter and over $1.5 billion year-to-date through cash dividends and share buybacks [15] - The company has a strong financial position with cash and investments totaling $1.8 billion and total borrowings of approximately $5 billion [14] Q&A Session Summary Question: Can you elaborate on the level of organic growth in Q3 and expectations for Q4? - Management noted that organic growth improved sequentially, with expectations for a similar performance in Q4, driven by easier comparisons and stronger operating performance [20][22] Question: How is the competitive environment and new sales performance? - The competitive environment remains stable, with double-digit bookings growth in both PEO and Paycor segments, and the company is adding headcount in the enterprise space [29][30] Question: Can you discuss the drivers behind the strong PEO insurance performance? - Management attributed the strong performance to high demand for PEO services, record retention rates, and successful annual enrollment [48][50] Question: How does the company view the impact of AI on the advisory side of the business? - Management believes that the advisory work is complex and cannot be easily replaced by AI, emphasizing the importance of human expertise in compliance and regulatory matters [37][39]

Third Quarter Highlights and Financial Results Fiscal 2026 Copyright 2026, Paychex, Inc. All rights reserved. Confidential and proprietary. 1 Forward Looking Statements Certain written statements in this presentation may contain, and members of management may from time to time make or discuss statements which constitute, "forward-looking statements" within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements include, without limit ...

Financial Data and Key Metrics Changes - Total revenue increased by 18% year-over-year to $1.6 billion, with adjusted operating income growing by 21% [4][14] - Diluted earnings per share decreased by 4% to $1.10, while adjusted diluted earnings per share increased by 11% to $1.26 [15] - Operating cash flows for the quarter were $445 million, with a rolling return on equity of 40% [16] Business Line Data and Key Metrics Changes - Management Solutions revenue grew by 21% to $1.2 billion, with Paycor contributing approximately 17 percentage points to this growth [14] - PEO and Insurance Solutions revenue increased by 6% to $337 million, driven by growth in average PEO worksite employees [15] - Interest on funds held for clients rose by 51% to $54 million, reflecting the addition of Paycor balances [15] Market Data and Key Metrics Changes - The PEO business achieved mid-single-digit worksite employee growth, supported by strong demand and near-record retention [6] - The Small Business Employment Watch index has remained stable throughout 2025, indicating no signs of recession [7] - Clients are facing challenges in sourcing qualified talent, which positions the company's solutions favorably in the market [7] Company Strategy and Development Direction - The company is focused on integrating the Paycor acquisition and driving AI initiatives to enhance operational efficiency [4][5] - A target of approximately $100 million in cost synergies for fiscal year 2026 has been set, with revenue synergies also on track [4][5] - The company aims to leverage its proprietary data set to enhance AI performance and deliver superior HR solutions [10][13] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the stability of the labor market and the demand for HR technology solutions [7][8] - The company is positioned to capitalize on AI-driven opportunities, with a focus on improving efficiencies and client outcomes [10][13] - The outlook for fiscal 2026 remains cautious, with expectations to come in towards the low end of revenue ranges due to softer-than-expected revenue per client [17][36] Other Important Information - The company has launched a GenAI-powered employment law and compliance platform, which has seen strong adoption [11] - The integration of AI across the business is expected to enhance productivity and client engagement [12][30] Q&A Session Summary Question: Concerns about Paycor's growth contribution - Management acknowledged integration challenges but estimated Paycor's growth at 8%-9% on a pro forma basis [21][40] Question: Insights on selling season and cost management - Demand remains consistent, with clients being cost-conscious and seeking value [27][28] Question: Clarification on revenue per client and deal sizes - Management noted softer revenue per client and smaller deal sizes across all business lines, attributed to macroeconomic factors [34][50] Question: Pricing and bundling strategies - Management believes their pricing model is advantageous and is exploring strategic adjustments to better meet market demands [56][58] Question: Upsell opportunities in PEO - The receptivity of Paycor clients to PEO has been positive, with a balanced mix of new and existing clients contributing to growth [66]

Financial Data and Key Metrics Changes - Total revenue increased by 18% year over year to $1.6 billion, with management solutions revenue growing 21% to $1.2 billion, primarily driven by product penetration and price realization [14][15] - Adjusted operating income grew by 21% over the prior year, with operating income margins at 36.7% and adjusted operating income margins increasing by approximately 80 basis points year over year to 41.7% [14][15] - Diluted earnings per share decreased by 4% to $1.10, while adjusted diluted earnings per share increased by 11% to $1.26 [15] Business Line Data and Key Metrics Changes - PEO and insurance solutions revenue increased by 6% to $337 million, driven by solid growth in the number of average PEO worksite employees [14] - Interest on funds held for clients increased by 51% to $54 million, reflecting the addition of Paycor balances and higher realized gains [15] - The PO business achieved market-leading mid-single-digit worksite employee growth, supported by strong demand and near-record retention [6] Market Data and Key Metrics Changes - Clients' workforce levels remained stable with flat same-store employment growth this quarter, and the Small Business Employment Watch index has remained relatively stable throughout 2025 [7] - Demand for HR technology and advisory solutions continues to align with expectations, despite challenges in sourcing qualified talent [7][9] Company Strategy and Development Direction - The company is focused on integrating the Paycor acquisition and achieving approximately $100 million in cost synergies for fiscal year 2026 [4][5] - The company is leveraging AI to enhance operational efficiency and client outcomes, with a strong emphasis on data quality and scale as competitive advantages [10][13] - The company aims to balance growth and innovation while expanding margins, positioning itself as a digitally driven HR leader [13][30] Management's Comments on Operating Environment and Future Outlook - Management remains confident in the value proposition and demand for solutions, despite a cautious market where clients are cost-conscious [27][36] - The company expects to achieve revenue synergies targets for the fiscal year and has seen steady progress in client retention and bookings [25][26] - The outlook for fiscal 2026 has been reaffirmed, with expectations for total revenue growth towards the low end of the ranges for management solutions, PEO, and insurance [17][35] Other Important Information - The company has launched a GenAI-powered employment law and compliance platform, which has seen strong adoption and utilization by HR experts [11] - The company is actively exploring additional applications of AI across the business to enhance efficiency and improve client outcomes [12] Q&A Session Summary Question: Concerns about Paycor's growth contribution - Management acknowledged integration challenges but estimated Paycor's growth at approximately 8% to 9% on a pro forma basis, slightly better than Q1 [22][23] Question: Insights on selling season and cost synergies - Management noted consistent demand and activity levels, with a focus on maintaining competitive positioning and leveraging AI for operational efficiency [27][28] Question: Clarification on revenue per client and deal sizes - Management indicated softer-than-expected revenue per client due to smaller deal sizes and less attachment at the point of sale, attributing this to macroeconomic factors [34][48] Question: Pricing and bundling strategies - Management expressed confidence in their pricing strategy, emphasizing the value proposition and the addition of new products to support pricing [56][57] Question: Upsell motion to PEO and client receptivity - Management reported strong receptivity to PEO offerings, with a balanced mix of new and existing clients contributing to growth [65][66]

Financial Data and Key Metrics Changes - Total revenue increased by 18% year over year to $1.6 billion, with management solutions revenue growing by 21% to $1.2 billion, primarily driven by product penetration and price realization [12][3] - Adjusted operating income grew by 21% over the prior year, with operating income margins at 36.7% and adjusted operating income margins increasing by approximately 80 basis points year over year to 41.7% [12][3] - Diluted earnings per share decreased by 4% to $1.10, while adjusted diluted earnings per share increased by 11% to $1.26 [12][3] - Interest on funds held for clients increased by 51% to $54 million, reflecting the addition of Paycor balances and higher realized gains [12][3] Business Line Data and Key Metrics Changes - PEO and insurance solutions revenue increased by 6% to $337 million, driven by solid growth in the number of average PEO worksite employees [12][3] - The PO business achieved market-leading mid-single-digit worksite employee growth, supported by strong demand and near-record retention [4][5] - Paycor contributed approximately 17 percentage points to the growth in management solutions revenue [12][3] Market Data and Key Metrics Changes - Clients' workforce levels remained relatively stable with flat same-store employment growth this quarter [5] - The Small Business Employment Watch index has remained stable throughout 2025, showing no signs of a recession at this time [5] - Small businesses continue to face challenges in sourcing qualified talent, indicating a competitive labor market [5] Company Strategy and Development Direction - The company is focused on integrating the Paycor acquisition and achieving approximately $100 million in cost synergies for fiscal year 2026 [3][4] - The company is leveraging AI to enhance operational efficiency and client outcomes, with a strong emphasis on data quality and scale [8][9] - The company aims to position itself as a digitally driven HR leader by reinventing the HCM experience as AI-first [11] Management's Comments on Operating Environment and Future Outlook - Management remains confident in the value proposition and demand for HR technology and advisory solutions, despite macroeconomic challenges [5][6] - The company expects to achieve revenue synergies targets for the fiscal year and is optimistic about the ongoing integration of Paycor [4][12] - Management anticipates total revenue growth of approximately 18% for the third quarter, with adjusted operating margins between 47% and 48% [15][16] Other Important Information - The company has launched a GenAI-powered employment law and compliance platform, which has seen strong adoption and utilization by HR experts [10] - The company is actively exploring additional applications of AI across its business to enhance efficiency and improve client outcomes [11] Q&A Session Summary Question: Concerns about Paycor's contribution to growth - Management acknowledged integration challenges but emphasized that Paycor's growth was estimated to be between 8% to 9% on a pro forma basis, slightly better than Q1 [20][21] Question: Insights on selling season and cost synergies - Management noted that demand remains consistent with historical levels, and they are optimistic about achieving long-term cost synergies through AI initiatives [25][26] Question: Guidance for fiscal 2026 and revenue per client - Management indicated that revenue per client growth was softer than expected, leading to guidance adjustments towards the low end of the range [33][34] Question: Pricing and bundling strategies - Management stated that they have a comprehensive pricing strategy and are exploring adjustments but feel confident in their current pricing model [52][53] Question: Upsell motion to PEO and client receptivity - Management reported strong receptivity to PEO offerings, with a balanced mix of new and existing clients contributing to growth [60][61]

Summary of Paychex Conference Call Company Overview - **Company**: Paychex - **Industry**: Human Capital Management (HCM) and Payroll Services Key Points AI Innovations and Product Development - Paychex has been working on AI-related innovations for over a decade, leveraging vast amounts of data from servicing 5 million small businesses annually [3][4] - The company plans to update its three core platforms (SurePayroll, Paychex Flex, and Paycor) to be AI-driven by the next calendar year [4] - A provisional patent has been granted for a tool that curates answers based on client interactions, enhancing HR consulting capabilities [5] - Agentic AI is being utilized to automate payroll processes and improve accuracy [6] Employment Landscape and Market Resilience - Despite concerns about a recession, Paychex reports resilience among small businesses, with a small business index showing only a slight moderation [8] - The primary issue in the labor market is a supply problem, exacerbated by restrictive immigration policies and accelerated retirements [11] - Paychex believes there is underemployment in its client base, with more job openings than available skilled labor [11] Impact of AI on Employment - The CEO does not foresee AI leading to mass unemployment, arguing that technological revolutions typically do not result in significant job losses [13] - Jobs will evolve rather than disappear, with a shift towards advisory roles for Paychex employees [14] Acquisition of Paycor - The acquisition of Paycor is seen as a natural extension of Paychex's business, expanding its total addressable market by $10 billion [20] - Integration of Paycor is progressing well, with cost synergies exceeding expectations and revenue synergies anticipated to grow over time [23][28] - Paychex aims to leverage its existing client base to drive revenue growth from the newly acquired Paycor clients [28] PEO Business Growth - Paychex is optimistic about its Professional Employer Organization (PEO) business, which is experiencing better growth than competitors due to increased investment and a strong value proposition [33] - There is significant room for growth in the PEO model, with only about 200,000 of the 6.5 million U.S. businesses currently utilizing it [33] Financial Performance and Growth Drivers - Paychex operates in a large market growing at mid-single digits, with expectations for PEO to grow faster than management solutions [45] - Revenue growth is driven by client-based growth, pricing power, and increased share of wallet from existing clients [46] - The company anticipates continued growth from M&A, particularly following the Paycor acquisition [47] Capital Allocation Strategy - Paychex plans to prioritize debt repayment, particularly with $400 million coming due in March, while maintaining a target gross leverage below 1.5 times [51] - The company aims to grow dividends in line with earnings, with a free cash flow margin exceeding 30% [52] - Share buybacks will be used to offset dilution, with M&A remaining a focus for future capital deployment [53] Additional Insights - The introduction of the Paychex Perks program aims to provide employees with affordable benefits options, addressing health inflation issues [37][38] - The company is focused on integrating AI into its HCM solutions to enhance user experience and operational efficiency [30][31]

Core Insights - Paychex reported a 10% total revenue growth in Q4 2025, driven by the Paycor acquisition, with a full-year revenue growth of 6% and adjusted diluted EPS growth of 6% [1] - The integration of Paycor exceeded management expectations, leading to raised cost synergy targets and guidance for fiscal 2026 projecting total revenue growth of 16.5%-18.5% [2] Integration and Market Strategy - The Paycor acquisition added over 50,000 clients, contributing approximately 12-13 percentage points to consolidated revenue growth in fiscal 2026 [3] - Paychex Flex targets companies with up to 99 employees, while Paycor focuses on enterprises with over 100 employees, and SurePayroll serves the smallest businesses [4] Cost Synergy and Operational Efficiency - Management raised cost synergy expectations for fiscal 2026 to $90 million, with most actions completed shortly after the acquisition [5][6] - Adjusted operating income margins, excluding Paycor, expanded by 110 basis points in Q4 and by 250 basis points for the full year, indicating operational discipline [5] Channel Ecosystem and Revenue Synergies - Over half of new business originates from channel partners, with initial cross-sell achievements validating the combined referral-driven go-to-market framework [7] - The Paychex Partner Plus program has enrolled over 1,000 brokers, fostering relationships and expanding the referral network [8] Future Outlook - For fiscal 2026, management projects total revenue growth of 16.5%-18.5%, with significant contributions from the Paycor acquisition and expected growth in various segments [9] - Most cost synergy actions have been executed, balancing incremental cost reductions and investments for long-term growth [10]