Image source: The Motley Fool. DATEWednesday, June 25, 2025, at 9:30 a.
EDTCALL PARTICIPANTSPresident and Chief Executive Officer — John GibsonSenior Vice President and Chief Financial Officer — Bob SchraderNeed a quote from one of our analysts.
[ tected]RISKSGibson said, "We have also seen an increase in bankruptcies and financial distress among micro-market participants and within our client base in Q4 FY2025," indicating pressure on the smallest customers.
Gibson reported, "Enrollment in our Florida at-risk medical plan decreased year over year in FY2025," highlighting a persistent revenue headwind within the PEO and Insurance Solutions segment.
Schrader stated, "Checks per client. Up being a little bit softer than we expected in Q4 FY2025," and Paychex has "checks per client down. Next year in the plan.
"Gibson observed, "Many es are frozen as they wait for more clarity a number of macro issues such as tariffs, inflations, and taxes," reflecting client caution. TAKEAWAYSTotal Revenue: $1.
4 billion for the fourth quarter, up 10%, including the contribution of Paycor; revenue excluding Paycor rose 3%. Full-Year Revenue Growth: Adjusted diluted earnings per increased 6% for FY2025.
Adjusted Diluted EPS: Adjusted diluted EPS increased 6% year-over-year in the fourth quarter ($1. 19) and for fiscal year 2025 ($4. 98); reported diluted EPS decreased 22% in Q4 ($0.
82) and 2% for FY2025 ($4. Adjusted Operating Margin: 40. 4% in the quarter and 42. 5% for fiscal year 2025; both expanded year over year, excluding Paycor and ERTC effects.
Paycor Integration: Cost synergy target raised to apximately $90 million for FY2026, with actions already taken to achieve this level and additional opportunities identified.
Revenue Synergies: Expected to contribute 30-50 basis points to FY2026 revenue growth, primarily from cross-selling into Paycor’s 50,000-client base.
Fiscal 2026 Outlook: Total revenue jected to grow 16. 5% for FY2026; 12%-13% points attributed to Paycor. Adjusted diluted EPS expected to grow 8.
5%, and Management Solutions revenue expected to increase 20%-22%.
PEO and Insurance Solutions: Revenue increased 4% in the fourth quarter and 6% for fiscal year 2025; fiscal 2026 guidance is 6%-8% growth, with acceleration expected in the second half as headwinds diminish.
Interest on Funds Held for Clients: Interest grew 18% in Q4 ($45 million), increased 10% to $106 million for fiscal year 2025; fiscal 2026 expected between $190 million and $200 million.
Client Metrics: Client retention rates imved year over year in FY2025 despite minor fourth-quarter disruption at the smallest client tier.
Sales Transformation and Coverage: Sales territories realigned; sales teams fully trained and in field as of fiscal 2026 start, with increased headcount and strategic investment in nology and sales platforms.
Cash Flow & Balance Sheet: Operating cash flow reached $2 billion for FY2025; cash and corporate investments totaled $1. 7 billion as of 05/31/2025; borrowings were apximately $5. 00 billion; over $1.
5 billion was returned to holders during FY2025. SUMMARYPaychex, Inc.
80%) consolidated platforms and sales organizations to target distinct market segments with the Flex, Paycor, and SurePayroll offerings.
Management jected top-line expansion for FY2026, driven primarily by the Paycor addition and cross-selling opportunities.
Despite softness at the micro-client level in Q4 and PEO revenue headwinds in Florida, overall client retention imved, and the firm maintained industry-leading adjusted operating margins.
Full-year operating cash flow supported continued investments in innovation and new partner grams targeting accountants and brokers.
FY2026 guidance anticipates continued revenue synergy momentum and margin expansion, while assuming macroeconomic uncertainty.
Schrader indicated sustained strategic focus on growth and margin discipline.
Gibson noted, "More than half of our new comes from channel partner referrals," highlighting the significance of the channel partner ecosystem and recent duct launches such as Paychex Partner and Partner Plus.
Schrader clarified, "our primary way to return that to holders is through dividend versus buybacks," confirming a stable capital return policy post-acquisition with a deleveraging focus.
The leadership committed to accelerated investment in both Paycor’s and Flex’s duct roadmaps, data-driven sales nology, and SurePayroll’s platform to drive organic and cross-sell growth into mid-2026.
INDUSTRY GLOSSARYPEO: fessional Employer Organization; a co-employment service where HR, payroll, and benefits administration are managed for client companies.
ASO: Administrative Services Outsourcing; an HR solution focusing on administrative support without co-employment arrangements.
ERTC: Employee Retention Tax Credit; a government tax incentive impacting reported earnings and growth comparisons for HCM viders.
Checks Per Client: Volume metric representing payroll transactions cessed for each client; an indicator of client payroll activity, often linked to underlying employment trends.
Full Conference Call TranscriptJohn Gibson: Thanks, Bob. I will start the call today by sharing key highlights for the fourth quarter. And fiscal year.
And then Bob will discuss our financial results and outlook. We will then, of course, open it up for your questions.
Given that the Paycor acquisition has closed and we have key integration activities to bring the two companies together, we are now operating as one Paychex. And not two different companies.
Our s today will reflect that fact.
Paychex demonstrated solid performance this year against our strategic objectives, underscoring our unique ability to effectively navigate dynamic market conditions while continuing to enhance our customer experience and market position, and also maintain our industry-leading operating margins.
We dered 10% revenue growth in the fourth quarter, reflecting continued execution across the and the addition of Paycor.
For full fiscal year 2025, we achieved 6% revenue growth and 6% growth in adjusted diluted earnings per.
We also dered 60 basis points of adjusted operating income margin expansion in the face of significant ERTC.
Our client retention rates increased year over year, underscoring the compelling value we vide as a trusted partner in our clients' growth and success.
We grew the number of clients we serve to apximately 800,000. And increased the number of 2,500,000 this year.
We have made significant gress on the Paycor acquisition, surpassing our expectations and setting a strong foundation for future success.
Based upon our early gress on the integration, and our increased understanding of the opportunities we have gained since closing, we are raising our cost synergy expectations to apximately $90,000,000 fiscal year twenty six.
The actions we have already taken give us high confidence in achieving the synergies. In addition, have identified a list of additional synergy opportunities that we are actively pursuing.
We also believe that there are additional opportunities to invest for future growth. And we will strategically accelerate those investments as the year gresses.
We previously outlined to you the unit structure, leadership continuity, and retention of key pay core talent to mitigate integration risk.
Customers are continuing to utilize their existing platform, minimizing the disruption to our client base.
Our retention remains strong, and the reception to the combined offerings has exceeded our expectations. In their early days.
I'll some of the recent integration accomplishments and focus areas for fiscal year '26. During the quarter, we defined how our HCM platforms will generally serve our market segments moving forward.
Paychex Flex will focus on companies with up to 99 employees, and the Paycor platform will target the upmarket enterprise segment above a 100 employees.
SurePayroll will continue to serve the small do-it-yourself marketplace.
This apach vides the market with the most comprehensive flexible, and innovative HCM solutions for organizations of all sizes and needs.
We also a comprehensive territory assessment and reassignment review across the sales teams that aligns to these market segments.
We have expanded and optimized our sales coverage nationwide in the fourth quarter.
Sales representatives who transition territories received comprehensive training on the complete suite of HCM solutions they can now offer.
We are encouraged by how sales hiring, retention, and tenure developments are going into the fiscal year.
While all of these changes did create some internal disruption, and took many of our sales resources out of the field for a portion of the fourth quarter, we believe now is the time to make these changes to best position us to win the marketplace.
With newly trained sales reps on our broad set of capabilities and solutions, realign territories, and a fully staffed sales team, we believe we are well-positioned entering the new fiscal year.
While we have made significant strides in integrating the teams, optimizing our go-to-market apach and capturing cost synergies, we're most enthusiastic the opportunities for revenue synergies.
We expect to realize revenue synergies over the next several years, I'm pleased we have already secured our first Paycor customers on our ASO and PO. And are seeing mising growth in our pipeline.
Notably, the PO cell was referred by a Paycor broker and this was even before we officially launched the duct into the client base.
We continue to believe the biggest opportunity is the cross-sell of Paychex Retirement, ASO and PO solutions into the Paycor base more than 50,000 clients.
We also believe there are opportunities to take Paycor's capabilities into the paycheck client base the years ahead.
We are pleased at how quickly our teams able to complete the bulk of the backing a integrations required to cross-sell into Paycor's base and realize these revenue synergies.
We also remain excited Paycor's embedded solution. Which enables seamless integration of our payroll and HR nology stack into our partners' platforms.
With thousands of potential partners, we are early in executing against this revenue opportunity and are actively scaling and in it.
We believe the synergies between the companies, coupled with our mutual focus on innovation and customer-centric solutions, position us to continue to der strong returns and drive long-term holder return.
A core component of our go-to-market strategy involves cultivating long-standing relationships with channel partners. Such as brokers, CPAs, and banks, just to name a few.
More than half of our new originates from channel partner referrals. Ing the acquisitions, we introduced the Paychex Partner Plus gram, to brokers to foster relationships and drive mutual growth.
Together, we now have a broader suite of solutions to offer brokers which can supplement their offerings to clients.
And the partner plus gram vides a structured framework designed to safeguard mutual clients from competing ducts.
To date, over 1,000 brokers are enrolled in the gram, and we are hearing positive back, which we believe indicates a strong foundation for retaining and expanding this important referral channel.
The of PACOR field bookings referred by brokers increased this past fiscal year. We are also actively gathering back from brokers CPAs, and banks to enhance our loyalty grams.
Designed to ensure we maintain the strongest partner gram in the HCM industry.
We also recently launched Paychex Partner platform, a new portal designed to vide accountants quick access to critical data reporting, and insights for their clients using Paychex Flex.
This innovative platform transforms how CPAs manage their portfolios by viding a centralized hub for accessing client payrolls and HR data, resolving issues, and identifying missing information This is empowering them to really operate with greater efficiency and actively serve their clients.
Our PO continues to also perform well, achieving solid worksite employee growth this quarter.
Similar to what we d with you last quarter, while the PO remained strong at participant levels in our health plans across the country continue to increase, enrollment in our Florida at risk medical plan did decrease year over year.
We also continued this to see a trend among employees opting for lower-cost health plans to offset the rising health care cost.
While these factors continue to pose a pass-through revenue headwind, they do not impact our earnings or our PO value position.
One of the benefits of the PO model is that it empowers small es to truly punch above their weight. And offer benefits comparable to those of Fortune 500 companies.
This enables them to attract and retain top talent in today's still very competitive labor market.
We remain bullish on the PO space given our scale and capability in this segment and just how greenfield the opportunity remains. Both inside and outside of our client base.
Now turning to the macro environment. We are observing a mix of both optimism and uncertainty within the market and our client base.
Many es are frozen as they wait for more clarity a number of macro issues such as tariffs, inflations, and taxes.
The hard data continues to indicate that small es remain fundamentally healthy, despite the headlines.
Our small employment watch revealed stable employment levels, with moderation in hourly wage inflation in the recent months. Our data does not currently show any signs of recession.
We also see in our interactions in the market that the uncertainty is mpting es to exercise caution when making decisions and being cautious how much they are spending on ducts and services.
We have also seen an increase in bankruptcies and financial distress the micro end of the market and in our client base, in the fourth quarter.
Many es, I think, on the edge of failure may have decided not to fight the new headwinds, they see in front of them. We also saw losses due to increases in combinations and mergers.
Increase more than typical. Both are signs of es making strategic decisions based their view of the current and future environment.
We will continue to monitor the hard data and trends in the market and take the appriate steps to position Paychex to win in any market conditions.
We will also continue to take the actions needed to tect our long-standing track record of financial strength even in challenging times.
I am ud of what the entire team at Paychex and Paycor have accomplished together. I would to thank our dedicated employees for their hard work and contribution in achieving these many successes.
They have accomplished a lot. In a very short period of time. There has been a lot of change internally and externally to navigate. And they have shown their dedication and real resiliency.
To der for our clients and for paychecks. And I am internally grateful for th.