PAYCOR HCM, INC. (PYCR)·Q2 2025 Earnings Summary

Executive Summary

• Q2 FY2025 revenue grew 13% YoY to $180.4M, with recurring revenue up 14% to $167.4M; GAAP operating profit turned positive ($1.2M vs. $(26.2)M YoY), and adjusted operating income rose 36% to $31.8M with a 17.6% margin .
• Management suspended all FY25 and Q3 guidance and did not host an earnings call due to the pending all-cash acquisition by Paychex; HSR waiting period expired on Feb 21, 2025, keeping closing on track for 1H 2025 .
• Results exceeded prior company guidance issued in November: revenue ($180.4M vs. $176–$178M) and adjusted operating income ($31.8M vs. $26–$27M) both came in above the ranges .
• Mix and operating leverage improved: GAAP net loss narrowed to $(2.0)M and adjusted free cash flow improved to $28.5M (15.8% margin) despite the absence of an earnings call; interest income on funds held remained solid at $13.1M on ~$1.17B average balances .

What Went Well and What Went Wrong

• What Went Well

  • Revenue and profit outperformed prior company guidance: $180.4M vs. $176–$178M revenue and $31.8M vs. $26–$27M adjusted operating income, reflecting stronger recurring revenue and cost leverage .
  • Material YoY margin expansion and cash generation: adjusted operating margin rose to 17.6% (from 14.6% YoY) and adjusted FCF improved to $28.5M (15.8% margin) .
  • Operating turnaround: GAAP operating profit of $1.2M vs. $(26.2)M YoY, aided by lower G&A and amortization; GAAP net loss narrowed to $(2.0)M vs. $(26.2)M YoY .

• What Went Wrong

  • Guidance withdrawn and no earnings call increase information overhang; management cited the pending Paychex transaction for suspending FY25 and Q3 guidance and skipping the call .
  • GAAP profitability remains thin (0.7% operating margin; $(2.0)M net loss) despite notable adjusted improvements .
  • Structural revenue headwinds persist from lower ancillary/form-filing tailwinds and macro labor moderation as previously noted in prior quarter commentary, pressuring gross margin mix vs. prior periods (context from earlier quarter) .

Financial Results

Revenue mix by quarter:

Actual vs prior company guidance (issued Nov 6, 2024):

KPIs and balance items:

Note: S&P Global consensus estimates for Q2 2025 were unavailable via our tool; therefore comparisons are shown vs company guidance, not Street estimates.

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• “Given the pending transaction, we will not be hosting an earnings conference call, are suspending financial guidance for fiscal year 2025, and will not provide financial guidance for the third quarter ending March 31, 2025.” (Q2 press release, Feb 5, 2025) .
• “Paycor had an impressive start to the year, delivering 17% revenue growth year-over-year.” (Q1 press release, Nov 6, 2024) .
• “Our embedded HCM channel continued to ramp… we now have more than 10 partners.” (Q1 call) .
• “We are introducing a new long-term adjusted free cash flow margin target of greater than 20%.” (Q4 call) .
• “Effective PEPM increased 11% year-over-year to $19.” (Q1 call) .

Q&A Highlights

• No Q&A this quarter; the company did not host a conference call due to the pending Paychex acquisition .
• Prior-quarter Q&A themes for context:
  • AI monetization is early; investments focused on product usability; pilots underway (e.g., call center assist) .
  • Embedded HCM expected to double revenue in FY25; pipeline broadening; some arrangements include minimums .
  • Broker channel strength sustained (>60% of bookings influence) .
  • Pricing/cross-sell contributed roughly one-third each to PEPM expansion .
  • Labor market contribution remained modest/flat in guidance assumptions .

Estimates Context

• Wall Street consensus (S&P Global) for Q2 FY2025 could not be retrieved due to a data mapping issue in our tool, so estimate comparisons are not included. As an alternative, results are compared against company-issued guidance from Nov 6, 2024 .

Key Takeaways for Investors

• The quarter was fundamentally strong: revenue and adjusted operating income both exceeded prior guidance with improved margins and cash generation, despite macro moderation in ancillary drivers .
• Strategic momentum continues under the surface: recurring revenue and profitability expanded, and prior-quarter commentary highlighted durable growth vectors (embedded HCM, broker channel, interoperability, AI) .
• Near-term information flow is constrained: management suspended FY25 and Q3 guidance and did not host an earnings call, reflecting the pending Paychex acquisition .
• M&A path clarifying: HSR waiting period expiration reduces a major regulatory condition; closing expected in 1H 2025, with $22.50 per share consideration per the merger agreement .
• For event-driven strategies, the key catalyst is merger closing; for fundamental holders, stand-alone trends (recurring growth, operating leverage, cash conversion) remained favorable heading into the transaction .
• Watch items: any updates on closing timeline/conditions; integration implications; sustained recurring growth/margins if the transaction timeline extends .

Additional M&A Context (Q2-related)

• Deal terms: all-cash merger at $22.50 per share; majority stockholder consent received; closing subject to customary conditions (including HSR, which has now expired) and certain state money-transmitter approvals; earliest close not before April 15, 2025 unless waived .
• HSR status: waiting period expired as of Feb 21, 2025; transaction expected to close within 1H 2025 .