Paychex, Inc. Reports Fourth Quarter and Full Year 2025 Results

Published: 2025-06-25 08:31:06 ET PAYX

Published on 06/25/2025 at 08:31

Double Digit Revenue Growth in Fourth Quarter Completed the Acquisition of Paycor HCM, Inc. ("Paycor") Issues Fiscal 2026 Business Outlook

Paychex, Inc. (Nasdaq: PAYX) (the "Company," "Paychex," "we," "our," or "us") today reported results for the fiscal quarter ended May 31, 2025 (the "fourth quarter") and fiscal year ended May 31, 2025 ("fiscal 2025"). Results compared with the same period last year are as follows:

Fourth Quarter

Fiscal Year

In millions, except per share amounts

2025

2024

Change(2)

2025

2024

Change(2)

Total revenue

$

1,427.3

$

1,295.1

10

%

$

5,571.7

$

5,278.3

6

%

Operating income

$

431.1

$

481.8

(11

)

%

$

2,207.7

$

2,174.1

2

%

Adjusted operating income(1)

$

576.7

$

521.3

11

%

$

2,370.0

$

2,213.6

7

%

Operating margin

30.2

%

37.2

%

39.6

%

41.2

%

Adjusted operating margin(1)

40.4

%

40.2

%

42.5

%

41.9

%

Diluted earnings per share

$

0.82

$

1.05

(22

)

%

$

4.58

$

4.67

(2

)

%

Adjusted diluted earnings per share(1)

$

1.19

$

1.12

6

%

$

4.98

$

4.72

6

%

(1)

(2)

“Paychex demonstrated solid performance this year against our strategic objectives, underscoring our ability to effectively navigate dynamic market conditions while continuing to enhance our customer experience and market position, and maintaining our industry-leading operating margins,” stated John Gibson, President and Chief Executive Officer. “We delivered 10% revenue growth in the fourth quarter, reflecting continued execution across the business and the addition of Paycor. Our strong client retention this year is a testament to the value we deliver as a trusted partner in our customers' growth and success, particularly during challenging and uncertain times. The strategic investments we continued to make in AI, technology and our customer experience played a significant role in our growth in revenue and profitability, contributing to strong adjusted operating margin expansion this year despite margin headwinds from Paycor and the discontinued Employee Retention Tax Credit (“ERTC”) program.”

Gibson added, “With the successful completion of the Paycor acquisition and significant progress made on the integration, Paychex is better positioned than ever before for continued success in the digital and AI-driven era of human capital management ("HCM"). This strategic move strengthens our capabilities upmarket; expands our total addressable market; enhances our strategic partner network; and provides additional opportunity for cross sell across our client base. The anticipated cost and revenue synergies, coupled with our commitment to innovation and customer-centric solutions, we believe will position us to continue our long-standing commitment to deliver robust returns and create long-term shareholder value.”

Fourth Quarter Business Highlights

Total revenue increased to $1.4 billion for the fourth quarter, representing growth of 10% over the prior year period. Highlights as compared with the corresponding prior year period are as follows:

Management Solutions revenue increased 12% to $1.0 billion for the fourth quarter, primarily due to the following:

Excluding the acquisition of Paycor, Management Solutions revenue increased approximately 3% compared with the corresponding prior year period.

Professional Employer Organization ("PEO") and Insurance Solutions revenue increased 4% to $340.3 million for the fourth quarter, primarily due to the following:

Interest on funds held for clients increased 18% to $45.2 million for the fourth quarter, primarily due to the acquisition of Paycor. Excluding the acquisition of Paycor, interest on funds held for clients increased approximately 3% compared with the corresponding year period.

Total expenses increased 22% to $1.0 billion for the fourth quarter, primarily impacted by the following factors:

Excluding the acquisition of Paycor and the prior year period cost optimization initiatives noted above, total expenses increased 1% for the fourth quarter compared to the prior year period.

Operating income decreased 11% to $431.1 million for the fourth quarter. Operating margin (operating income as a percentage of total revenue) was 30.2% for the fourth quarter compared to 37.2% for the prior year period. Adjusted operating income(1) grew 11% to $576.7 million for the fourth quarter. Adjusted operating margin(1) (adjusted operating income as a percentage of total revenue) was 40.4% for the fourth quarter compared to 40.2% for the prior year period. Excluding Paycor, adjusted operating margin(1) expanded by approximately 110 basis points compared to the prior year period.

Interest expense increased $54.2 million to $63.7 million for the fourth quarter, primarily due to the issuance of incremental debt to finance the acquisition of Paycor and acquisition-related costs.

Our effective income tax rate was 23.7% for the fourth quarter and 22.8% for the prior year period. Both periods were affected by the recognition of discrete tax impacts related to employee stock-based compensation payments.

Diluted earnings per share decreased 22% to $0.82 per share and adjusted diluted earnings per share(1) increased 6% to $1.19 per share for the fourth quarter.

(1)

Adjusted operating income, adjusted operating margin, and adjusted diluted earnings per share are not U.S. GAAP measures. Please refer to the "Non-GAAP Financial Measures" section on page 4 of this press release for a discussion of non-GAAP measures.

Fiscal Year Business Highlights

Highlights for fiscal 2025 as compared with the corresponding prior year are as follows:

(1)

Financial Position and Liquidity

Our financial position and cash flow generation remained strong during fiscal 2025. As of May 31, 2025, we had:

Return to Stockholders During Fiscal 2025

Non-GAAP Financial Measures

For the three months ended

For the twelve months ended

May 31,

May 31,

$ in millions, except per share amounts

2025

2024

Change

2025

2024

Change

Operating income

$

431.1

$

481.8

(11

)

%

$

2,207.7

$

2,174.1

2

%

Non-GAAP adjustments:

Acquisition-related costs(1)

145.6

—

162.3

—

Cost optimization initiatives(2)

—

39.5

—

39.5

Adjusted operating income

$

576.7

$

521.3

11

%

$

2,370.0

$

2,213.6

7

%

Adjusted operating margin

40.4

%

40.2

%

42.5

%

41.9

%

Net income

$

297.2

$

379.9

(22

)

%

$

1,657.3

$

1,690.4

(2

)

%

Non-GAAP adjustments:

Acquisition-related costs(1)

166.4

—

196.3

—

Cost optimization initiatives(2)

—

39.5

—

39.5

Tax impact of above adjustments

(33.3

)

(9.6

)

(40.6

)

(9.6

)

Excess tax benefit related to employee stock-based compensation payments(3)

(0.7

)

(5.7

)

(10.1

)

(11.2

)

Adjusted net income

$

429.6

$

404.1

6

%

$

1,802.9

$

1,709.1

5

%

Diluted earnings per share(4)

$

0.82

$

1.05

(22

)

%

$

4.58

$

4.67

(2

)

%

Non-GAAP adjustments:

Acquisition-related costs(1)

0.46

—

0.54

—

Cost optimization initiatives(2)

—

0.11

—

0.11

Tax impact of above adjustments

(0.09

)

(0.03

)

(0.11

)

(0.03

)

Excess tax benefit related to employee stock-based compensation payments(3)

(0.00

)

(0.02

)

(0.03

)

(0.03

)

Adjusted diluted earnings per share

$

1.19

$

1.12

6

%

$

4.98

$

4.72

6

%

Net income

$

297.2

$

379.9

(22

)

%

$

1,657.3

$

1,690.4

(2

)

%

Non-GAAP adjustments:

Interest expense/(income), net

43.2

(12.1

)

32.6

(45.4

)

Income taxes

92.1

111.9

518.6

527.6

Depreciation and amortization expense

85.7

45.6

209.5

176.5

EBITDA

$

518.2

$

525.3

(1

)

%

$

2,418.0

$

2,349.1

3

%

Non-GAAP adjustments:

Acquisition-related costs(1)

104.9

—

121.6

—

Cost optimization initiatives(2)

—

39.5

—

39.5

Adjusted EBITDA

$

623.1

$

564.8

10

%

$

2,539.6

$

2,388.6

6

%

(1)

(2)

(3)

(4)

In addition to reporting operating income, operating margin, net income, and diluted earnings per share, which are U.S. GAAP measures, we present adjusted operating income, adjusted operating margin, adjusted net income, adjusted diluted earnings per share, earnings before interest, taxes, depreciation, and amortization ("EBITDA"), and adjusted EBITDA, which are non-GAAP measures. We believe these additional measures are indicators of the performance of our core business operations period over period. Adjusted operating income, adjusted operating margin, adjusted net income, adjusted diluted earnings per share, EBITDA, and adjusted EBITDA are not calculated through the application of U.S. GAAP and are not required forms of disclosure by the Securities and Exchange Commission ("SEC"). As such, they should not be considered a substitute for the U.S. GAAP measures of operating income, operating margin, net income, and diluted earnings per share, and, therefore, they should not be used in isolation but in conjunction with the U.S. GAAP measures. The use of any non-GAAP measure may produce results that vary from the U.S. GAAP measure and may not be comparable to a similarly defined non-GAAP measure used by other companies.

Business Outlook

Our business outlook for the fiscal year ending May 31, 2026 ("fiscal 2026") incorporates current assumptions and market conditions and excludes acquisition-related costs. Changes in the macroeconomic environment could alter our guidance. With consideration of these impacts, we have updated our business outlook as follows:

(1)

Annual Report on Form 10-K ("Form 10-K")

We anticipate filing our Form 10-K before the end of July 2025, and it will be available at https://investor.paychex.com. This press release should be read in conjunction with the Form 10-K and the related Notes to Consolidated Financial Statements and Management's Discussion and Analysis of Financial Condition and Results of Operations contained in that Form 10-K.

Webcast Details

Interested parties may access the webcast of our Earnings Release Conference Call, scheduled for June 25, 2025, at 9:30 a.m. Eastern Time, at https://investor.paychex.com. The webcast will be archived for approximately 90 days. Our news releases, current financial information, SEC filings, and investor presentations are also accessible at https://investor.paychex.com.

About Paychex

Paychex, Inc. (Nasdaq: PAYX) is the digitally driven HR leader that is reimagining how companies address the needs of today's workforce with the most comprehensive, flexible, and innovative HCM solutions for organizations of all sizes. Offering a full spectrum of HR advisory and employee solutions, Paychex pays one out of every 11 American private sector workers and is raising the bar in HCM for nearly 800,000 customers in the U.S. and Europe. Every member of the Paychex team is committed to fulfilling the Company's purpose of helping businesses succeed. Visit www.paychex.com to learn more.

Cautionary Note Regarding Forward-Looking Statements

Certain written statements in this press release 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 can be identified by such words and phrases as "expect," "outlook," "will," guidance," "projections," "strategy," "anticipate," "believe," "can," "could," "may," "possible," "potential" "should," and other similar words or phrases. Forward-looking statements include, without limitation, all matters that are not historical facts. Examples of forward-looking statements include, among others, statements we make regarding the integration of Paycor, operating performance, events, or developments that we expect or anticipate will occur in the future, including statements relating to our outlook, revenue growth, earnings, earnings-per-share growth, and similar projections.

Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on our current beliefs, expectations, and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy, and other future conditions. Because forward-looking statements relate to the future, they are subject to known and unknown uncertainties, risks, changes in circumstances, and other factors that are difficult to predict, many of which are outside our control. Our actual performance and outcomes, including without limitation, our actual results and financial condition, may differ materially from those indicated in or suggested by the forward-looking statements. Therefore, you should not rely on any of these forward-looking statements. Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include, among others, the following:

Any of these factors, as well as such other factors as discussed in our SEC filings, could cause our actual results to differ materially from our anticipated results. The information provided in this document is based upon the facts and circumstances known as of the date of this press release, and any forward-looking statements made by us in this document speak only as of the date on which they are made. Except as required by law, we undertake no obligation to update these forward-looking statements after the date of issuance of this press release to reflect events or circumstances after such date, or to reflect the occurrence of unanticipated events.

PAYCHEX, INC.

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

(In millions, except per share amounts)

For the three months ended

For the twelve months ended

May 31,

May 31,

2025

2024

Change(2)

2025

2024

Change(2)

Revenue:

Management Solutions

$

1,041.8

$

930.3

12

%

$

4,067.1

$

3,866.4

5

%

PEO and Insurance Solutions

340.3

326.6

4

%

1,342.9

1,265.6

6

%

Total service revenue

1,382.1

1,256.9

10

%

5,410.0

5,132.0

5

%

Interest on funds held for clients(1)

45.2

38.2

18

%

161.7

146.3

10

%

Total revenue

1,427.3

1,295.1

10

%

5,571.7

5,278.3

6

%

Expenses:

Cost of service revenue

393.9

375.2

5

%

1,540.4

1,479.3

4

%

Selling, general and administrative expenses

602.3

438.1

37

%

1,823.6

1,624.9

12

%

Total expenses

996.2

813.3

22

%

3,364.0

3,104.2

8

%

Operating income

431.1

481.8

(11

)

%

2,207.7

2,174.1

2

%

Interest expense

(63.7

)

(9.5

)

n/m

(105.4

)

(37.3

)

n/m

Other income, net(1)

21.9

19.5

12

%

73.6

81.2

(9

)

%

Income before income taxes

389.3

491.8

(21

)

%

2,175.9

2,218.0

(2

)

%

Income taxes

92.1

111.9

(18

)

%

518.6

527.6

(2

)

%

Net income

$

297.2

$

379.9

(22

)

%

$

1,657.3

$

1,690.4

(2

)

%

Basic earnings per share

$

0.82

$

1.06

(23

)

%

$

4.60

$

4.69

(2

)

%

Diluted earnings per share

$

0.82

$

1.05

(22

)

%

$

4.58

$

4.67

(2

)

%

Weighted-average common shares outstanding

360.3

360.0

360.2

360.3

Weighted-average common shares outstanding, assuming dilution

362.3

361.8

362.0

362.1

Cash dividends per common share

$

1.08

$

0.98

$

4.02

$

3.65

(1)

Further information on interest on funds held for clients and other income, net, and the short- and long-term effects of changing interest rates can be found in our filings with the SEC, including our Quarterly Reports on Form 10-Q and our Annual Report on Form 10-K, as applicable, under the caption "Management’s Discussion and Analysis of Financial Condition and Results of Operations" and subheadings "Results of Operations" and "Market Risk Factors." These filings are accessible at https://investor.paychex.com.

(2)

PAYCHEX, INC.

CONSOLIDATED BALANCE SHEETS (Unaudited)

(In millions, except per share amounts)

May 31,

2025

2024

ASSETS

Cash and cash equivalents

$

1,628.6

$

1,468.9

Restricted cash

47.9

47.8

Corporate investments

34.5

33.9

Interest receivable

27.9

23.3

Accounts receivable, net of allowance for credit losses

1,330.5

1,059.6

PEO unbilled receivables, net of advance collections

616.6

542.4

Prepaid income taxes

38.9

47.5

Prepaid expenses and other current assets

378.3

321.9

Current assets before funds held for clients

4,103.2

3,545.3

Funds held for clients

4,813.3

3,706.2

Total current assets

8,916.5

7,251.5

Long-term corporate investments

—

3.7

Property and equipment, net of accumulated depreciation

511.5

411.7

Operating lease right-of-use assets, net of accumulated amortization

63.8

46.9

Intangible assets, net of accumulated amortization

1,947.3

194.5

Goodwill

4,514.1

1,882.7

Long-term deferred costs

482.4

477.1

Other long-term assets

128.5

115.0

Total assets

$

16,564.1

$

10,383.1

LIABILITIES

Accounts payable

$

129.8

$

104.3

Accrued corporate compensation and related items

183.9

135.0

Accrued worksite employee compensation and related items

735.8

662.4

Short-term debt

18.6

18.7

Long-term debt, net, current portion

399.8

—

Deferred revenue

69.4

50.2

Other current liabilities

552.0

469.8

Current liabilities before client fund obligations

2,089.3

1,440.4

Client fund obligations

4,867.0

3,868.7

Total current liabilities

6,956.3

5,309.1

Accrued income taxes

119.0

102.6

Deferred income taxes

444.7

86.0

Long-term debt, net

4,548.4

798.6

Operating lease liabilities

55.5

49.0

Other long-term liabilities

312.2

236.8

Total liabilities

12,436.1

6,582.1

STOCKHOLDERS’ EQUITY

Common stock, $0.01 par value; Authorized: 600.0 shares; Issued and outstanding: 360.5 shares as of May 31, 2025 and 360.1 shares as of May 31, 2024

3.6

3.6

Additional paid-in capital

1,901.1

1,729.5

Retained earnings

2,277.0

2,213.0

Accumulated other comprehensive loss

(53.7

)

(145.1

)

Total stockholders’ equity

4,128.0

3,801.0

Total liabilities and stockholders’ equity

$

16,564.1

$

10,383.1

PAYCHEX, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(In millions)

For the twelve months ended

May 31,

2025

2024

OPERATING ACTIVITIES

Net income

$

1,657.3

$

1,690.4

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

209.5

176.5

Amortization of premiums and discounts on available-for-sale securities, net

23.4

(7.0

)

Amortization of deferred contract costs

236.5

231.7

Stock-based compensation costs

111.8

61.1

Benefit from deferred income taxes

(15.8

)

(29.8

)

Provision for allowance for credit losses

24.2

19.8

Net realized losses on sales of available-for-sale securities

0.4

2.6

Net realized losses on disposal of assets

3.7

32.8

Premiums paid on cash flow hedges

(19.2

)

—

Changes in operating assets and liabilities:

Interest receivable

(3.8

)

1.1

Accounts receivable and PEO unbilled receivables, net

(106.1

)

113.0

Prepaid expenses and other current assets

(12.0

)

(25.2

)

Accounts payable and other current liabilities

67.9

(127.0

)

Deferred costs

(246.5

)

(244.9

)

Net change in other long-term assets and liabilities

21.9

6.1

Net change in operating lease right-of-use assets and liabilities

(2.1

)

(3.5

)

Net cash provided by operating activities

1,951.1

1,897.7

INVESTING ACTIVITIES

Purchases of available-for-sale securities

(14,302.9

)

(6,868.5

)

Proceeds from sales and maturities of available-for-sale securities

14,292.5

7,161.2

Net change in purchased receivables

(157.3

)

(153.8

)

Purchases of property and equipment

(191.8

)

(161.4

)

Acquisition of businesses, net of cash acquired

(3,287.4

)

(208.3

)

Purchases of other assets

(29.8

)

(30.1

)

Net cash used in investing activities

(3,676.7

)

(260.9

)

FINANCING ACTIVITIES

Net change in client fund obligations

(21.0

)

(425.3

)

Net proceeds from short-term borrowings

—

9.0

Proceeds from the issuance of corporate bonds

4,180.9

—

Dividends paid

(1,448.5

)

(1,315.3

)

Repurchases of common shares

(104.5

)

(169.2

)

Debt issuance costs

(47.8

)

—

Activity related to equity-based plans

3.8

26.1

Net cash provided by/(used in) financing activities

2,562.9

(1,874.7

)

Net change in cash, restricted cash, and equivalents

837.3

(237.9

)

Cash, restricted cash, and equivalents, beginning of fiscal year

1,897.0

2,134.9

Cash, restricted cash, and equivalents, end of fiscal year

$

2,734.3

$

1,897.0

Reconciliation of cash, restricted cash and equivalents

Cash and cash equivalents

$

1,628.6

$

1,468.9

Restricted cash

47.9

47.8

Restricted cash and restricted cash equivalents included in funds held for clients

1,057.8

380.3

Total cash, restricted cash, and equivalents

$

2,734.3

$

1,897.0

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