PAYCHEX INC (PAYX) Q3 2025 Earnings Summary

Executive Summary

Q3 FY25 delivered steady growth and margin expansion: revenue $1.509B (+5% YoY), GAAP EPS $1.43 (+4% YoY), adjusted EPS $1.49 (+8% YoY), operating margin 45.8% and adjusted operating margin 46.9% (+180 bps) . Versus S&P Global consensus, results were in line to modest beats (EPS +$0.01; revenue +$0.02B)*.
Mix dynamics: Management Solutions +5% to $1.101B and PEO & Insurance Solutions +6% to $365.4M; “interest on funds held for clients” down 2% to $42.9M as rates drifted lower .
Guidance: FY25 PEO & Insurance growth lowered to 6.0–6.5% and adjusted operating margin now ~43%; total revenue growth guide unchanged at 4%–5.5% but management expects the low end due to pass-through insurance headwinds .
Strategic catalyst: pending Paycor acquisition cited as accretive to adjusted EPS in FY26 with expense synergies now “over $80M”; deal subsequently closed April 14, 2025 (all-cash ~$4.1B EV) .

What Went Well and What Went Wrong

What Went Well

Margin expansion and efficiency: Adjusted operating margin rose ~180 bps YoY to 46.9%, driven by automation, AI, and cost discipline; GAAP operating margin reached 45.8% . CEO: “investments in automation and technology are boosting efficiency across the organization” .
Broad-based growth with pricing power: Management Solutions grew 5% on price realization and product penetration; CFO noted strong price realization and improved discounting dynamics benefiting revenue per client .
Advancing AI/product roadmap: HR GenAI Copilot near launch for next fiscal year; Recruitment Copilot and Flex Engage traction; recognized among Fortune’s Most Innovative Companies (CEO remarks) .

What Went Wrong

PEO pass-through revenue headwinds: Florida at-risk medical plan enrollment declined; employees traded down to lower-cost plans, dampening pass-through insurance revenues (earnings-neutral but revenue headwind) .
Other (expense)/income swing: Turned to $(6.0)M from +$9.4M YoY due to acquisition-related financing costs and lower corporate investment yields .
Macro drags on activity: Checks per client were softer in Q3 (bonus distribution dynamics) and weather events in California impacted hiring; asset balances headwind to retirement revenue if markets soften into Q4 .

Financial Results

Headline P&L vs prior quarters (USD)

Metric	Q1 2025	Q2 2025	Q3 2025
Total Revenue ($B)	$1.3185	$1.3169	$1.5090
GAAP Diluted EPS ($)	$1.18	$1.14	$1.43
Adjusted Diluted EPS ($)	$1.16	$1.14	$1.49
Operating Margin % (GAAP)	41.5%	40.9%	45.8%
Adjusted Operating Margin %	N/A	N/A	46.9%

Segment and revenue components (Q3 FY25)

Revenue Component	Q3 2025 ($M)	YoY
Management Solutions	1,100.7	+5%
PEO & Insurance Solutions	365.4	+6%
Interest on Funds Held for Clients	42.9	-2%
Total Revenue	1,509.0	+5%

KPIs and other items (Q3 FY25)

KPI	Q3 2025	YoY
Operating Income ($M)	691.8	+6%
Adjusted Operating Income ($M)	708.5	+9%
Other (Expense)/Income, net ($M)	(6.0)	n/m (from +$9.4M)
Effective Tax Rate	24.3%	24.4% prior year
EBITDA ($M)	734.9	+6%
Adjusted EBITDA ($M)	751.6	+8%
Rolling 12-mo ROE	45% (management comment)	N/A

Non-GAAP adjustments were primarily acquisition-related costs tied to Paycor financing and fees: $16.7M within SG&A and $13.2M in other expense; these added back to derive adjusted operating income and adjusted EPS ($1.49 vs $1.43 GAAP) .

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Total Revenue Growth	FY25	4%–5.5% (unchanged Q2)	4%–5.5% (unchanged); mgmt expects low end	Maintained; bias to low end
Management Solutions Growth	FY25	3%–4%	3%–4% (unchanged)	Maintained
PEO & Insurance Solutions Growth	FY25	7%–9% (lower end expected)	6.0%–6.5%	Lowered
Interest on Funds Held for Clients	FY25	$135–$155M	$145–$155M	Raised lower bound
Adjusted Operating Margin	FY25	High end of 42%–43%	~43%	Slightly raised/clarified
Effective Tax Rate	FY25	24%–25%	24%–25%	Maintained
Adjusted Diluted EPS Growth	FY25	5%–7%	5%–7%	Maintained
Q4 with Paycor (close in April)	Q4 FY25	N/A	Revenue +10%–12% incl. Paycor; adjusted EPS neutral	New context

Management reiterated Paycor is expected to be accretive to adjusted EPS in FY26; expense synergies now expected to exceed $80M (versus “$80M” initially) . The acquisition closed April 14, 2025 (after Q3) .

Earnings Call Themes & Trends

Topic	Previous Mentions (Q1 & Q2)	Current Period (Q3)	Trend
AI/product innovation	Q1: Launched Recruiting Copilot, Flex Engage, and Perks; emphasized long AI history and data moat . Q2: Continued momentum; strong adoption; innovation highlighted .	HR Copilot nearing launch; AI and automation credited for efficiency and retention gains .	Building from pilots to deployment; expanding impact
Macro/hiring/checks	Q1: Hiring modestly better than plan; checks per client flattish assumed . Q2: Base employment in line with plan .	Softer checks in Q3 (bonus mix); regional disruptions (CA fires, weather); macro stable; no recession signs .	Stable macro with transient Q3 softness
PEO pass-through/Florida	Q1: Flagged Florida at-risk plan flat YoY; employees trading down . Q2: Guided PEO to lower end of 7–9% .	Enrollment mix and plan downgrades in Florida reduced pass-through revenues; no EPS impact; underwriting conservatism emphasized .	Continuing headwind; risk-managed approach
Pricing/discounting	Q1: Pricing stable; disciplined growth . Q2: Continued pricing power and product penetration .	Strong price realization; improved discounting in Q3; sustainable 2%–4% pricing lever .	Positive, supports revenue per client
M&A/Paycor integration	Q1: Robust M&A pipeline, discipline . Q2: None.	Paycor synergies now >$80M; accretive next year; plan to operate as stand-alone unit within “One Paychex”; revenue synergy work next .	Integration planning accelerated; confidence up

Management Commentary

“Adjusted operating margins for the quarter were 46.9%…an increase of approximately 180 basis points due to increased productivity and cost discipline.” – CFO .
“We now expect [Paycor] synergies over the $80 million that we shared with you in January…we now expect the acquisition to be accretive to our adjusted earnings per share next fiscal year.” – CEO .
“We feel like we have strong pricing power…in that 2% to 4% range…Q3 had better price realization with favorable discounting.” – CFO .
“HR Copilot…testing phase…nearly complete, on track to launch at the start of our next fiscal year.” – CEO .
“Checks per client…flat year-to-date…Q3 a little softer than expected…impacted by weather, California fires and lower bonus checks.” – CEO .

Q&A Highlights

PEO headwinds isolated to Florida at-risk medical plan and employee plan downgrades; strategy remains underwriting conservatism and agency options to avoid long-tail risk; impact is revenue-only, not EPS .
Paycor deal: management increased confidence in expense synergies (> $80M) and accretion to adjusted EPS in FY26; exclusions in adjusted view include acquired intangibles amortization, certain legacy stock comp, and one-time transaction costs .
Macro/hiring: underlying demand steady; retention strong with client losses down; checks per client stable YTD; expecting Q3 trends to persist into Q4 .
Pricing power intact; revenue per client benefited from better discounting in Q3; management maintains discipline on CAC and unit economics .
AI/automation: runway remains, not just “low-hanging fruit”; models improving sales, service, and retention; HR Copilot to enhance advisory productivity and quality .

Estimates Context

Results vs S&P Global consensus (estimates and actuals):

Metric	Q1 2025	Q2 2025	Q3 2025
Revenue Consensus ($B)*	1.3135	1.3128	1.5088
Revenue Actual ($B)*	1.3185	1.3169	1.5090
Surprise ($B)*	+0.0050	+0.0046	+0.0002
Primary EPS Consensus ($)*	1.1376	1.1231	1.4796
Primary EPS Actual ($)*	1.16	1.14	1.49
Surprise ($)*	+0.0224	+0.0169	+0.0104

Values retrieved from S&P Global.*

Implications: modest beats in EPS across all three quarters and revenue essentially in line to slight beats; Q4 guide biased to low end for organic revenue due to pass-through insurance mix, but inclusion of Paycor post-close lifts reported Q4 revenue growth to +10–12% with neutral adjusted EPS impact .

Key Takeaways for Investors

Mix and margin trump modest top-line: despite small revenue beat, the 180 bps adjusted margin expansion signals durable cost/automation benefits; expect FY25 adjusted operating margin near 43% .
PEO revenue headwind is transitory and earnings-neutral: Florida at-risk plan dynamics and plan buy-downs are managed conservatively; focus remains on WSE growth and lifetime value .
Pricing and product attach remain levers: improved discounting and cross-sell support revenue per client; watch for continued 2%–4% pricing realization .
Near-term catalyst: Paycor integration—expense synergies >$80M and FY26 adjusted EPS accretion; look for revenue synergy framework on Q4 call; deal closed April 14, 2025 .
AI commercialization ramp: HR Copilot launch next fiscal year plus existing Recruit Copilot/Flex Engage should enhance productivity and stickiness; monitor adoption metrics and monetization in FY26 .
4Q setup: organic revenue at low end of guide due to pass-through insurance; with Paycor, reported revenue +10%–12% and adjusted EPS neutral, setting a higher base into FY26 .

Additional Relevant Press Releases (Q3 window and shortly thereafter)

Q3 Results press release (March 26, 2025) with full financials and updated FY25 outlook .
Paycor acquisition completion (April 14, 2025): all-cash ~$4.1B EV; expected >$80M cost synergies in FY26 and accretive to adjusted EPS .
Recognition: Company cited as one of Fortune’s Most Innovative Companies (management remarks) .

Notes:

Q3 highlights and financial statements per Form 8-K/Ex.99.1 (press release) .
Prior quarters used for trend analysis sourced from company press releases/8-Ks and call transcripts .