Executive Summary
Paychex delivered a solid QQ3 2025 performance with revenue growth of 5% year over year (6% excluding the ERTC headwind) driven by its leading HCM and payroll solutions. The quarter featured meaningful margin expansion, with adjusted operating margins up ~180 basis points to 46.9% and adjusted diluted EPS up 8% to $1.49. Net income rose to $519.3 million on revenue of $1.509 billion, while free cash flow generation remained robust at approximately $667 million for the period. Management framed the move into AI- and automation-enabled productivity as a core driver of efficiency and long-term margin resilience, citing the Gen AI-powered HR Copilot and ongoing digital transformations. In addition, Paychex announced a Definitive Agreement to acquire Paycor, targeting synergies above $80 million and aiming for near-term EPS accretion. The company also highlighted strong customer retention and solid demand in its HR outsourcing and PO/insurance solutions, while noting Florida-specific pass-through headwinds in the health plan attachment that partially offset revenue growth. Looking forward, guidance for FY2025 remains a balanced mix of mid-single-digit core growth (4-5.5% revenue growth) and higher near-term Q4 revenue with Paycor contributions, while the company expects the acquisition to be accretive to adjusted EPS in the next fiscal year. Investors should monitor Paycor integration progress, ongoing price realization, health-plan attachment dynamics (notably Florida), and AI-driven product adoption as key drivers of the multi-year earnings trajectory.
Key Performance Indicators
Key Insights
Revenue: $1.509 billion in Q3 2025, +5% YoY (ex-ERTC headwind: +6% YoY). Gross profit: $1.1216 billion; gross margin 74.33%. Operating income: $691.8 million; operating margin 45.84%. EBITDA: $751.5 million; EBITDA margin 49.80%. Net income: $519.3 million; net margin 34.41%. Diluted EPS: $1.44; diluted EPS (adjusted): $1.49 (Q3 2025). Weighted shares: ~360.1 million outstanding (GAAP); 362.0 million diluted. Free cash flow: $667.3 million; cash flow from operating activities: $716.0 million; ca...
Financial Highlights
Revenue: $1.509 billion in Q3 2025, +5% YoY (ex-ERTC headwind: +6% YoY). Gross profit: $1.1216 billion; gross margin 74.33%. Operating income: $691.8 million; operating margin 45.84%. EBITDA: $751.5 million; EBITDA margin 49.80%. Net income: $519.3 million; net margin 34.41%. Diluted EPS: $1.44; diluted EPS (adjusted): $1.49 (Q3 2025). Weighted shares: ~360.1 million outstanding (GAAP); 362.0 million diluted. Free cash flow: $667.3 million; cash flow from operating activities: $716.0 million; cash at end of period: $2.393 billion. Balance sheet highlights: total assets $11.22 billion; total liabilities $7.105 billion; total stockholders’ equity $4.116 billion; net debt position: negative $700.1 million (cash > debt). Efficiency and liquidity: current ratio 1.39; interest coverage ~30.6x. Cash returns: $1.2 billion returned to shareholders in 9 months via dividends and buybacks; payout ratio ~68%. Revenue mix: Management Solutions ~$1.1 billion; PO & Insurance Solutions ~$365 million. 9M FY2025 revenue growth: +4%; Management Solutions +3%; PO & Insurance +7%; Interest on funds +8%. Guidance: FY2025 total revenue growth 4-5.5%; Management Solutions +3-4%; PO & Insurance +6-6.5%; Adjusted operating margin ~43%; Adjusted EPS growth 5-7%. Paycor impact: Q4 revenue growth 10-12% including Paycor; EPS neutral in Q4, accretive in next fiscal year; synergy target >$80 million.
Income Statement
| Metric |
Value |
YoY Change |
QoQ Change |
| Revenue |
1.51B |
4.84% |
14.59% |
| Gross Profit |
1.12B |
5.86% |
19.60% |
| Operating Income |
691.80M |
6.46% |
28.56% |
| Net Income |
519.30M |
4.15% |
25.62% |
| EPS |
1.44 |
3.60% |
25.22% |
Key Financial Ratios
operatingProfitMargin
45.8%
operatingCashFlowPerShare
$1.99
freeCashFlowPerShare
$1.85
Management Commentary
Key themes from the earnings call and management presentation include: (1) Paycor acquisition acceleration and synergy potential: management reiterated that synergies exceeding $80 million are now expected and that the acquisition will be accretive to adjusted EPS next fiscal year; they are planning to run Paycor as a standalone business unit initially, with integration to begin in earnest post-close. John Gibson emphasized that this creates an opportunity to offer a broader and more comprehensive HCM platform to Paychex customers and Paycor clients alike. (2) AI/automation as productivity accelerant: Paychex highlighted Gen AI-powered HR Copilot and ongoing AI investments as core to margin expansion and better client service. The HR Copilot tool is in testing with launch planned for the start of the next fiscal year. (3) Earnings quality and margin discipline: Management attributed the 180bp year-over-year improvement in adjusted operating margins to productivity gains and cost discipline from technology investments, while acknowledging Florida-specific health plan pass-through headwinds as a revenue headwind but not a margin nor value proposition issue. (4) Customer retention and value proposition: The company reported retention near record levels in HR outsourcing, above pre-pandemic revenue retention, and strong customer satisfaction (Wall Street Journal ranking). (5) Macro and bookings environment: Q3 bookings in PEO grew in double digits with a robust pipeline into Q4, though macro headwinds remained a factor in Florida’s PEO health plan attachments. Quotes from John Gibson and Bob Schrader emphasize the plan to leverage the combined platform to accelerate growth and the careful management of underwriting and participant choices in Florida to preserve the PEO value proposition.
“We now expect synergies over the $80 million that we shared with you in January.”
— John Gibson
“The HR Copilot tool will enable our HR professionals to leverage the collective knowledge base we have built over the years to drive both efficient and effective answers to our clients' concerns.”
— John Gibson
Forward Guidance
Paychex maintains a constructive near-term and medium-term outlook anchored by (i) the Paycor closing and integration plan, (ii) a continued investment in AI/productivity to sustain margin expansion, and (iii) a diversified mix of Management Solutions and PO/Insurance Solutions. Near-term: FY2025 revenue growth 4-5.5%, with Q4 expected to grow 10-12% including Paycor but EPS accretion neutral in Q4. Long-term: management reiterated that the acquisition is expected to be accretive to adjusted EPS in the next fiscal year, aided by cost synergies (>$80M) and potential revenue synergies from cross-sell, particularly in areas like 401(k) and broader HCM capabilities. Key monitoring factors for investors: (a) Paycor close timing and integration milestones, (b) realized cost synergies and any incremental investment in go-to-market and product development, (c) revenue synergies from cross-sell (e.g., 401(k) attach rates and mid-market expansions), (d) Florida health-plan attachment dynamics and the path to stabilizing pass-through revenue, and (e) AI-driven product adoption and its impact on customer acquisition, retention, and pricing power.