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    PAYX
    Earnings call· Aug 2025(Q1 FY26)

    PAYCHEX INC PAYX

    Sep 30, 2025 Source

    Executive summary

    Paychex Q1 FY26 — Strong Revenue Growth and Paycor Integration Progress

    Paychex delivered robust Q1 FY26 results, driven by strong revenue growth and significant progress on the Paycor integration, which is exceeding cost synergy targets and building a strong cross-sell pipeline. The company is also leveraging AI to enhance client experience and operational efficiency, while its PEO segment continues to outperform. Management raised its full-year adjusted EPS guidance, reflecting increased confidence in the combined entity's performance and strategic initiatives amidst a resilient small business environment.

    Highlights

    5

    • Total revenue increased 17% to $1.5 billion.

    • Adjusted diluted EPS grew 5% to $1.22, with full-year guidance raised to 9-11%.

    • Paycor integration on track for targeted revenue synergies and exceeding initial cost synergy expectations of $90 million.

    • PEO business showed mid-single-digit worksite employee growth and double-digit bookings growth.

    • Payroll client and revenue retention remained strong at pre-pandemic levels.

    Concerns

    4

    • Diluted EPS decreased 10% to $1.06 per share.

    • PEO and Insurance Solutions growth was 3% to $329 million, impacted by at-risk plan headwinds.

    • Concentrated client losses in the small business area due to bankruptcies, though at pre-pandemic levels.

    • Agency business growth was impacted by workers' comp rate headwinds.

    Guidance & targets

    10
    CategoryTargetConfidence
    Total revenue growth
    between 16.5% and 18.5%
    high materiality
    High
    Revenue synergies contribution to growth
    30 to 50 basis points of growth
    medium materiality
    High
    Management Solutions revenue growth
    in the range of 20% to 22%
    high materiality
    High
    PEO and Insurance Solutions revenue growth
    in the range of 6% to 8%
    high materiality
    High
    Interest on funds held for clients
    in the range of $190 million to $200 million
    medium materiality
    High
    Adjusted operating income margin
    approximately 43%
    high materiality
    High
    Effective income tax rate
    in the range of 24% to 25%
    medium materiality
    High
    Adjusted diluted earnings per share growth
    between 9% and 11%
    high materiality
    High
    Total revenue growth
    approximately 18%
    medium materiality
    Medium
    Adjusted operating margin
    approximately 41%
    medium materiality
    Medium

    Segment performance

    2
    SegmentRevenueYoYQoQMargin
    Management Solutions
    Primarily due to the addition of Paycor as well as higher revenue per client, driven by price realization and increased product penetration.
    Paycor contribution to revenue growth: 17%
    		$1.2 billion21%——
    PEO and Insurance Solutions
    Primarily driven by solid growth in the number of average PEO worksite employees. Outside of the at-risk plan headwinds, PEO continues to perform well. Agency business was a drag due to workers' comp rate pressures.
    Average PEO worksite employees growth: mid-single-digit
    		$329 million3%——

    Operational metrics

    21
    Total revenue
    $1.5 billionincreased 17% over prior year
    Q1 FY26

    Robust revenue growth.

    Diluted earnings per share
    $1.06decreased 10%
    Q1 FY26

    Reported GAAP diluted EPS.

    Adjusted diluted earnings per share
    $1.22increased 5%
    Q1 FY26

    Solid adjusted diluted EPS growth.

    Interest on funds held for clients
    $48 millionincreased 27%
    Q1 FY26

    Due to the inclusion of Paycor balances.

    Total expenses
    $998 millionincreased 29%
    Q1 FY26

    Primarily driven by the Paycor acquisition.

    Operating income margin
    35.2%
    Q1 FY26

    GAAP operating income margin.

    Adjusted operating income margin
    40.7%
    Q1 FY26

    Non-GAAP adjusted operating income margin.

    Cash, restricted cash and total corporate investments
    $1.7 billion
    Q1 FY26

    Strong financial position.

    Total borrowings
    $5 billion
    Q1 FY26

    Total debt outstanding.

    Capital returned to shareholders
    $549 million
    Q1 FY26

    Returned to shareholders during the quarter.

    Return on equity (12-month rolling)
    40%
    Q1 FY26

    Robust 12-month rolling return on equity.

    Cost synergy target (Paycor integration)
    $90 millionexceed initial expectations
    FY26

    Fiscal year '26 cost synergy target, with additional opportunities being pursued.

    PEO bookings growth
    double digits
    Q1 FY26

    PEO bookings continued to be very solid.

    Medical enrollment growth
    10%
    Q1 FY26

    Medical enrollment in California.

    Payroll client and revenue retention
    strongpre-pandemic levels
    Q1 FY26

    Continued to be strong at near record levels for the company.

    Small business bankruptcies
    elevatedpre-pandemic type of level
    Q1 FY26

    Concentrated losses in the small business area, predominantly out of business, but still at pre-pandemic levels.

    Employee attrition (Paycor)
    betterhistorically
    Q1 FY26

    Attrition in the Paycor client base is better than what Paycor had seen historically, excluding synergy-related reductions.

    Retirement business growth
    near double-digit
    Q1 FY26

    Strong growth business for some time, continued in the quarter.

    Organic expense growth
    3%
    Q1 FY26

    Expense growth excluding the impact of the Paycor acquisition.

    Adjusted operating income growth
    15%
    Q1 FY26

    Strong growth in adjusted operating income.

    Organic growth (total business)
    4%
    Q1 FY26

    Implied organic growth for the overall business in Q1, with full-year guide implying 5%.

    Industry KPIs

    3
    MetricValueDetails
    Peo metricsmid-single-digit%
    Retention raterecord level
    Client funds balances yield$48 millionUSD

    Product announcements

    3
    ProductTypeDetails
    Bill Pay; Powered by BILLlaunch
    AI insights (generative AI assistant)expansion
    Generative AI-powered HR guidance toollaunch

    Deals & partnerships

    2
    PaycorIntegration of Paycor's operations and client base into Paychex to achieve synergies and expand market reach.

    The integration is progressing well, with strong client retention wins and accelerated back-end technology integrations. Management is building a strong pipeline for cross-selling Paychex solutions to Paycor's client base, particularly for ASO and PEO, and retirement solutions.

    BILL (Bill.com)Strategic partnership to integrate Bill Pay functionality into Paychex Flex application for small and midsized businesses.

    Launched Bill Pay; Powered by BILL, a new financial management solution that integrates payroll, HR, and accounts payable. It aims to simplify payments for SMBs and enhance CPA support. Plans to expand to include accounts receivable in 2026.

    Risks & headwinds

    4
    At-risk plan headwinds (PEO)Last fiscal year, continuing into Q1 FY26, expected to anniversary in the new calendar year (H2 FY26).

    Impacted PEO and Insurance Solutions revenue growth (3% to $329 million).

    Mitigation: Focus on driving enrollment and worksite employee growth, new plan lineups, underwriting improvements, AI partnership for plan selection.

    Workers' comp rate headwinds (Agency business)Q1 FY26.

    Drag on the growth rate of the PEO and Insurance Solutions category.

    Mitigation: Not explicitly stated, but management noted continued focus on overall PEO performance.

    Concentrated client losses due to bankruptcies (small business)Q1 FY26, continuing from Q4 FY25.

    Not quantified in dollars, but noted as 'concentrated losses'.

    Mitigation: Management noted that bankruptcy data, while elevated, is still at pre-pandemic levels and not out of the ordinary. Focus on value proposition and retention.

    Competitive environment in Florida (PEO)Ongoing.

    Not quantified, but noted as a 'competitive environment'.

    Mitigation: Not adjusting underwriting to take on undue risk; balancing risk with plan growth. Expanding overall health plan enrollment in other states like California.

    What to watch in Q2 FY26

    4

    PEO revenue growth acceleration

    H2 FY26
    Current3% in Q1 FY26
    TargetStronger growth with easier compares

    Why it matters

    PEO is a key growth driver, and its acceleration in the back half of the year is crucial for meeting full-year guidance.

    PEO and Insurance Solutions is expected to grow in the range of 6% to 8%. And as previously noted, we expect revenue to accelerate in the back half of the year as we anniversary the at-risk revenue growth headwinds we experienced last fiscal year.

    Q&A highlights

    6

    Seeking an update on demand, specifically if there are differences by employer size or offering.

    Demand remains consistent with historical trends, with increased activity. PEO bookings are up double digits, and there's good traction in the micro segment. The overall demand environment is stable.

    “No real change. I mean, look, demand remains consistent with what we've been seeing historically. As a matter of fact, activity is up. I think there's a lot of shoppers in the market right now. Our PEO bookings continued to be very solid, up double digits this past quarter.”

    asked by Jared Levine · answered by John Gibson

    2 min read5 chapters

    Detailed Narrative

    01

    Paycor Integration Progress

    Paychex reported significant progress on the Paycor integration, achieving targeted revenue synergies and exceeding initial cost synergy expectations, now at approximately $90 million for FY26. The integration has enabled notable client retention wins and accelerated back-end technology integrations, positioning the combined entity for broader cross-selling opportunities, particularly for Paychex's retirement, ASO, and PEO solutions to Paycor's client base. Management noted that employee attrition in the Paycor client base is better than historical levels, and the combined leadership team is making powerful decisions.

    02

    AI and Innovation

    The company is actively leading digital and AI-driven transformation in HCM, deploying pragmatic AI solutions internally and externally. Key advancements include expanding AI insights for PEO clients, launching a generative AI-powered HR guidance tool for internal experts, and piloting agentic AI solutions to automate high-volume client tasks, aiming to enhance client experience, boost operational efficiency, and accelerate development. Paychex believes its large HR dataset and technology capabilities will differentiate its offerings and provide better insights to clients.

    03

    PEO Business Performance

    Paychex's PEO business continues to perform strongly, reporting mid-single-digit worksite employee growth, double-digit bookings growth, and record retention. Despite some at-risk plan headwinds, particularly in Florida, the PEO model is seen as a key growth driver, empowering small businesses with comprehensive benefits and attracting talent. Management emphasized that while the Florida market is competitive, they are not adjusting underwriting to take on undue risk, and overall health plan enrollment is expanding.

    04

    Strategic Partnerships and Client Engagement

    Paychex is strengthening its relationships with channel partners like brokers, CPAs, and banks. The Partner Plus program for brokers has seen enrollment nearly double, while the new CPA Partner Pro portal enhances support for the CPA community. The company also launched Bill Pay; Powered by BILL, a financial management solution integrating payroll, HR, and accounts payable, to simplify payments for SMBs and enhance CPA support, with plans to expand to accounts receivable in 2026.

    05

    Macroeconomic Environment and Outlook

    Management noted a resilient small business environment with stable employment and moderating wage inflation, showing no signs of recession. Increased clarity on tariffs, taxes, and inflation, including a tax bill in place and Fed rate cuts, is expected to boost business confidence and encourage investment and hiring, supporting Paychex's positive outlook for the fiscal year. The company does not anticipate significant direct impact from potential government shutdowns or H-1B visa changes.

    AI-generated summary of the company’s earnings call. Not investment advice.