The paragraph is a summary of Paychex's Fourth Quarter Fiscal 2025 Earnings Call, where key executives John Gibson and Bob Schrader discuss the company's financial performance, including the recent closure of the Paycor acquisition and its integration into a unified Paychex entity. Bob Schrader introduces the call by mentioning the release of financial results, future filings with the SEC, and the inclusion of forward-looking statements. John Gibson then highlights the business achievements for the quarter and fiscal year. The call includes references to non-GAAP financial measures and invites questions from participants.

In the past year, Paychex has shown strong performance, achieving 10% revenue growth in the fourth quarter and 6% for the full fiscal year 2025, alongside a 6% rise in adjusted diluted earnings per share. Despite facing challenges like ERTC headwinds, the company expanded its adjusted operating income margin by 60 basis points and improved client retention rates. Paychex now serves about 800,000 clients and 2.5 million HR outsourcing worksite employees. The integration of Paycor has exceeded expectations, prompting an increase in projected cost synergies to $90 million for fiscal year 2026. Paychex is pursuing further synergy opportunities and plans to strategically accelerate investments for continued growth. To ensure successful integration, they have maintained the business unit structure and retained key Paycor talent, minimizing client disruption.

The paragraph discusses the company's strategic positioning for fiscal year '26, highlighting strong retention and positive reception to their integrated Human Capital Management (HCM) solutions. It outlines their market strategy: Paychex Flex for companies with up to 99 employees, Paycor for enterprises with over 100 employees, and SurePayroll for small businesses. The company has optimized and expanded its sales territory nationwide, providing comprehensive training to sales representatives on the HCM solutions. Despite some internal disruptions due to changes, the company feels prepared for the new fiscal year with a realigned sales team, and is optimistic about achieving revenue synergies and market success.

The paragraph discusses the successful integration and cross-selling opportunities between Paycor and Paychex following recent acquisitions. The companies are focusing on leveraging revenue synergies by introducing Paychex's ASO, PEO, and retirement solutions to Paycor's extensive client base and vice versa. Early successes include the sale of a PEO product referred by a Paycor broker. The companies are prioritizing integration to enhance their payroll and HR technology offerings. The strategy emphasizes building strong relationships with channel partners like brokers, CPAs, and banks, highlighted by the new Paychex Partner Plus program, which aims to foster mutual growth and protect clients from competitors. The collaboration is viewed as a key driver for innovation, customer satisfaction, and long-term shareholder returns.

The paragraph highlights the positive feedback and growth in Paycor's broker-enrolled program, which has become a key referral channel. Efforts to enhance loyalty programs with brokers, CPAs, and banks are ongoing. The new Paychex Partner Pro platform, aimed at accountants, facilitates better client service through streamlined access to payroll and HR data. The PEO business is performing well with employee growth, although there's been a decrease in enrollment in Florida's at-risk medical plan, as employees opt for lower-cost options. Despite these trends, the PEO model continues to offer small businesses competitive benefits for talent acquisition and retention.

The paragraph expresses optimism about the PEO space due to its potential growth, despite a mix of market optimism and uncertainty driven by macro issues like tariffs, inflation, and taxes. Small businesses remain healthy, with stable employment and moderated wage inflation. However, caution and increased bankruptcies are seen, especially among micro businesses, along with more mergers and business combinations as strategic responses to current and future challenges. Paychex plans to continue monitoring market trends and maintain financial strength, while acknowledging the accomplishments of its team.

The paragraph discusses the financial performance of Paychex in the fourth quarter and the full fiscal year. In Q4, total revenue increased by 10% to $1.4 billion, with a 3% increase excluding the Paycor acquisition. Management Solutions revenue rose by 12% to $1 billion, driven by Paycor's addition and higher revenue per client. PEO and Insurance Solutions revenue increased by 4% to $340 million, fueled by growth in PEO worksite employees. Interest on funds held for clients went up by 18% to $45 million, primarily due to Paycor. Total expenses increased by 1%, excluding the impact of Paycor and previous cost optimizations. Operating income margins were at 30.2%, while adjusted operating income margins reached 40.4%, showing a 20 basis point increase. Without Paycor, adjusted operating income margins grew by approximately 110 basis points, attributed to improved productivity and cost management.

In the fourth quarter, diluted earnings per share fell by 22% to $0.82, while adjusted diluted earnings per share rose by 6% to $1.19. For the full fiscal year 2025, total revenue increased by 6% to $5.6 billion, with growth in various segments. Expenses, excluding Paycor's acquisition, grew by 1%, and operating margins reached 39.6% on a GAAP basis, with adjusted margins at 42.5%. The company improved adjusted operating income margins by 250 basis points, excluding certain impacts. Diluted earnings per share decreased by 2% to $4.58, and adjusted earnings per share rose by 6% to $4.98. The financial position is strong, with $1.7 billion in cash and investments, $5 billion in borrowings, and $2 billion in cash flow from operations. Shareholder returns were over $1.5 billion, and return on equity was 42%. Looking ahead to fiscal 2026, the company is optimistic about succeeding in a digital and AI-focused environment despite a fluid macroeconomic context.

The paragraph provides a financial outlook for the company's fiscal '26, highlighting expected revenue growth between 16.5% and 18.5%, with a significant contribution from the recent Paycor acquisition. Management Solutions are projected to increase by 20% to 22%, while PEO and Insurance Solutions are expected to grow by 6% to 8%, with acceleration in the latter half of the year. Interest on funds held for clients is estimated at $190 million to $200 million. The adjusted operating income margin is anticipated to be around 43%, with an effective income tax rate of 24% to 25%. Adjusted diluted earnings per share are expected to increase by 8.5% to 10.5%. For the first quarter, total revenue growth is projected to be between 16% and 17%, with an adjusted operating income margin of 40% to 41%. The outlook is subject to change based on current assumptions.

In the paragraph, Mark Steven Marcon inquires about the impact of sales force restructuring on recent and upcoming quarterly performance, potential residual effects into the first quarter, and areas of enthusiasm for revenue synergies and cross-sales. John B. Gibson responds by explaining that the company executed a planned sales transformation and go-to-market changes in the fourth quarter to avoid further distractions and impacts. He notes that while this could have extended into the first quarter, the decision was made to complete it swiftly. The sales teams have been reorganized, trained, and are now operating in their new territories.

The paragraph discusses the company's successful launch and initial sales efforts in June, highlighting positive responses from clients and early achievements, such as acquiring a client from a competitor and securing a significant new client for their ASO product. The client plans to upgrade to a more advanced package due to the support provided. The speaker expresses excitement about future technology opportunities and confidence in the company's positioning for the fiscal year. Robert Lewis Schrader adds that the company aims to minimize early disruptions and anticipates stronger growth in PEO and insurance in the latter half of the year, despite a slower start in Q1 due to specific headwinds.

In the article, the speaker addresses the disruption experienced in Q4 and its impact on financial results. Although the results were slightly below consensus, they clarify that it didn't significantly affect the outcomes. The main issue was an unexpected delay in closing the Paycor deal due to the bond market shutdown on Liberation Day, resulting in the deal being completed a bit later than anticipated. This timing issue affected their revenue guidance, as meeting the original schedule would have aligned with their forecasted 10% to 12% growth range. Additionally, Bryan Bergin from TD Cowen inquires about the growth deceleration from Q3 to Q4 in Management Solutions. Bob (Robert Lewis Schrader) explains that while checks were expected to be softer in Q4, they ended up being even softer than anticipated. The text discusses both temporary and ongoing dynamics affecting growth.

The paragraph discusses various factors affecting the company's performance in Q4. It highlights a mix issue with smaller client sizes and increased MPP enrollment headwinds in Q4 compared to Q3. The retirement business, although strong, showed slower growth in Q4 due to a market downturn, with the S&P declining about 6%. Additionally, Q4 faced tougher comparisons due to the timing of annual price increases, which were consistent with the previous year, eliminating a possible advantage. After adjusting for these elements, the company believes that the Q4 performance aligns with their full-year guidance and expectations for organic growth in the next year.

In the paragraph, John B. Gibson discusses the company's strategy for client growth moving into 2026 and beyond. The focus is on maintaining 1% to 3% organic client growth, enhancing product penetration, and leveraging pricing strength to deliver value to customers. Gibson emphasizes disciplined growth, avoiding excessive spending on customer acquisition that could undermine profitability. He highlights the importance of achieving sustainable growth rather than using promotions or incentives to artificially inflate client numbers, ensuring clients added are profitable in the long term.

The paragraph discusses Paychex's strategy for driving client growth while focusing on profitable, long-term customer relationships. The company is confident in its market position and competitive advantage across segments. It has identified additional investment opportunities, particularly in back-office efficiencies, which exceed previous cost synergy discussions. Paychex plans to invest fully in the Paycor and Flex road maps, as well as increase investment in the SurePayroll platform and Paycor embedded product, anticipating benefits in 2026. The Operator then mentions a question from Samad Samana of Jefferies regarding financial assumptions for Paycor's contribution in fiscal 2026.

The paragraph discusses Paycor's projected revenue growth, which is expected to be a strong double-digit increase despite a conservative outlook. Robert Lewis Schrader explains the conservative guidance is to ensure achievable targets. Samad Saleem Samana inquires about the integration of Paycor's sales and marketing teams with another organization. John B. Gibson responds, indicating that they reviewed the entire go-to-market strategy and both companies have segmentation in their sales strategies, looking into potential adjustments for future improvements.

The paragraph discusses the company's efforts to build a top industry team supported by the best tools and marketing. During the quarter, there was a focus on quickly combining marketing organizations from Paycor and Paycom, optimizing market territories, and increasing sales headcount. Despite some delays, such as with Paycor, significant progress was made in a short time, including setting up segmented sales teams with new marketing support. The question from Tien-Tsin Huang from JPMorgan sought to clarify if sales disruptions and issues like bankruptcies impacted the company's guidance, with John B. Gibson confirming that these impacts were minor.

In the paragraph, the speaker discusses the impact of an external shock in the fourth quarter that affected client retention, leading some clients to leave due to uncertainty, similar to patterns seen during financial crises. Despite this challenge, overall client retention improved year-over-year. Additionally, the speaker addresses a question about cost synergies, explaining that while no specific new synergies are identified, they are achieving the anticipated savings in targeted areas from previous plans.

The paragraph discusses a company's financial strategy following a recent deal closure with Paycor. It highlights that the company is ahead of expectations regarding financial gains and plans to reinvest in business growth as this is a growth-focused initiative, not just about cost synergies. The company is exploring additional opportunities to enhance growth and aims to balance cost savings with investments. Regarding capital allocation, the company intends to maintain its current strategy, prioritizing business investment and sustaining its dividend policy. Excess cash will primarily be returned to shareholders via dividends rather than share buybacks, which are mainly used to offset share dilution.

The paragraph discusses the company's focus on reducing leverage following a transaction. This will be achieved through incremental EBITDA generated from synergies and paying down some long-term debt due within the next year. James Eugene Faucette asks about the trend of micro-business bankruptcies and strategic decisions, inquiring if it impacts the company’s outlook. John B. Gibson responds that it does not, as they have exceeded expectations in client and revenue retention, and observed these issues mainly in small, sole proprietorships, following a "Liberation Day" period.

The paragraph discusses the current state of the business market, noting moderate growth in small business hiring and slower than expected growth in the mid-market, though not to a recessionary level. There is a high degree of uncertainty due to macroeconomic factors such as the tax bill, tariffs, and global conflicts. The focus is expected to shift to the Federal Reserve's interest rate decisions. In relation to synergies, Robert Lewis Schrader mentions that revenue synergies are projected to contribute 30 to 50 basis points of growth in the next year, with indications of successful cross-sell opportunities in the PEO and ASO model.

The paragraph discusses a company's strategic acquisition and the growth potential it brings. The transaction provides an opportunity to cross-sell various solutions, such as ASO, PEO, and retirement services, into a newly expanded client base of 50,000 larger clients, which traditionally have greater needs for such services. Although the company anticipates a gradual realization of these opportunities over several years, early successes have already been noted. The paragraph also addresses the timing of cost synergies, specifically mentioning a target of $90 million in savings by fiscal 2026, and hints at a steady realization rather than a front-loaded approach.

The paragraph discusses actions taken to achieve cost synergies, which are starting to reflect in the P&L as the year progresses. The company has confidence in raising expectations due to these actions and sees additional opportunities, particularly in procurement. John B. Gibson highlights the cultural integration and teamwork within the company, emphasizing strategic leadership changes to handle rapid organizational change amidst external disruptions. The goal is to provide clarity to clients, partners, and employees, ensuring that the changes are beneficial for all parties involved.

In the fourth quarter, the team executed synergy plans, exceeding expectations. They fully invested in the Paycor and Flex road maps and the SurePayroll platform, expanded sales teams, reset market territories, and launched a new sales technology stack with an AI tool. They introduced the Paychex Partner Pro platform and the Partner Plus platform program for brokers. They also integrated all marketing organizations within 6 to 8 weeks. The organization is now better positioned for fiscal year '26, with future efforts focused on procurement and vendor negotiations. The leadership from both Paycor and Paychex was committed to driving these changes, and the speaker expressed pride and appreciation for the team's efforts.

In the paragraph, a discussion unfolds about trends observed in checks per client, highlighting that these trended slightly softer in Q4, having initially increased in the first half of the year. The guidance for the next year reflects this softness, anticipating checks per client to decrease. On restructuring expenses and their impact on cash flow, it's indicated that much of the restructuring is complete, and future adjustments will mainly be non-cash related, implying that free cash flow growth should align with earnings. Subsequently, Kartik Mehta asks about pricing strategies post-COVID, questioning whether current pricing is higher than pre-COVID levels.

John B. Gibson discusses their approach to client acquisition and retention, emphasizing the importance of strategically choosing clients who offer long-term value and can transition from promotional discounts to regular pricing. They focus on using scientific profiling to avoid clients who solely seek low costs and are challenging to upsell. He highlights that their strategy has improved since the pandemic and remains strong within historical growth patterns. Robert Lewis Schrader adds that they continuously review their strategy concerning their float portfolio, especially with fluctuating interest rates on the horizon.

The paragraph discusses a financial plan that includes short-term rate decreases aligned with the Fed's expectations, while focusing on a long-term investment strategy for the client funds portfolio. The company recently acquired Paycor's client fund, which was mainly invested short-term, and is transitioning it to a long-term investment approach. The yield curve remains flat, allowing reinvestment at higher rates than the securities currently rolling off. It emphasizes the company's financial strength and liquidity, which aids in managing these funds optimally. In response to a question, it is mentioned that the revenue synergies and organic growth outlook for Management Solutions, particularly for fiscal '26, are difficult to separate, as efforts are made to integrate Paycor and Paychex businesses.

The paragraph discusses the integration and financial planning around Paycor within Paychex. The speaker outlines efforts to provide clarity on total revenue contributions from Paycor within Management Solutions, acknowledging the challenges in isolating inorganic growth as integration progresses. John B. Gibson highlights the strategic positioning of Paycor for the 100-plus market segment, incorporating enterprise business resources, while downmarket business from Paycor has been shifted to Paychex’s segment. The goal is to streamline internal organization and avoid prolonged restructuring over multiple fiscal years.

The paragraph discusses the expectations for the Management Solutions segment in fiscal year '26, following a recent deal closure. It highlights the anticipation of an acceleration from a 3% growth seen in Q4. Jason Alan Kupferberg inquires about the visibility and factors influencing this growth, especially given recent challenges in client decision-making. Robert Lewis Schrader explains that while the back half of the year may see slightly lower growth due to the anniversary of the Paycor acquisition, the overall growth is expected to be consistent. He notes that the 3% growth rate was impacted by a tough comparison to the previous year, due to changes in pricing timing and increases. They're factoring these elements to better understand the true exit rate in Q4.

The paragraph discusses the challenges in interpreting business growth figures due to various headwinds, such as economic uncertainties and external factors like tariffs and global conflicts. Despite confusing data, the speaker is confident about the growth outlook. John B. Gibson adds that their Small Business Index shows moderate growth in small businesses, with no recession signs. While there's some softness in the larger business segment, the overall economic environment remains stable. Future uncertainties include potential budget issues and tariffs affecting the market.

The paragraph discusses assumptions about a stable macro environment for businesses to make investment decisions, highlighting aspects such as taxes and tariffs. It also covers Paychex's Professional Employer Organization (PEO) trends, noting strong demand and record worksite employee retention in Q4, with expectations for continued strong performance into fiscal 2026. The focus is on both Administrative Services Organization (ASO) and PEO as higher-value solutions, despite facing headwinds from the MPP plan.

In the paragraph, the speakers discuss the strong performance of their business, particularly highlighting employee growth and demand for their PEO health plans despite challenges such as health inflation. They mention that the growth and operating performance have been strong throughout the year, especially in Q4, except for some issues in Florida, which impacts revenue but not overall profitability. The discussion concludes with an offer to access a replay of the conference call and a thank you to participants, with best wishes for the 4th of July.

This summary was generated with AI and may contain some inaccuracies.