Paychex Inc Q4 2025 Earnings Call Summary

The following is excerpted from the question-and-answer section of the transcript.

Question: Mark Marcon - Robert W. Baird & Co Inc - Analyst : Hey, good morning, John and Bob. I'm wondering, can you talk a little bit more about some of the distractions just in terms of putting together the sales forces, how long you actually ended up taking them out of the field and in production and how that ended up impacting the fourth quarter? That's the first question. And then how much do you expect that to spill over into the first quarter? You're guiding to potentially a lower top end of the range than your full year guidance. So I'm wondering if there's some residual effects from that. And then can you talk a little bit about the areas that you're really excited about with regards to the revenue synergies and the cross-sales? You mentioned the initial success on the ASO, but obviously, that's really early. How do you think that's going to build over the course of the year beyond the comments about the 30 to 50 bps, but just like where it's happening and what you think it's going to end up doing from a longer-term perspective? Thank you. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JUNE 25, 2025 / 1:30PM, PAYX.OQ - Q4 2025 Paychex Inc Earnings Call

Question: Mark Marcon - Robert W. Baird & Co Inc - Analyst : That's very helpful. Thank you so much.

Question: Bryan Bergin - Cowen and Company LLC - Analyst : Hi guys, good morning. Thank you. I just want to follow up here, maybe a little bit on the last point you made, Bob, on a 4Q growth bridge from 3Q and maybe the factors going forward. So as we look at the 3% or so organic Management Solutions growth in 4Q, can you just help bridge some of that deceleration from that 4.8%, I believe, in 3Q? Just talk about some of the changes, whether it's underlying demand, checks, retention, pricing. Obviously, you talked about the sales dynamics there, and that sounds transitory, but just trying to think about as we go forward here, what's kind of transitory versus lasting within Management Solutions?

Question: Bryan Bergin - Cowen and Company LLC - Analyst : Okay. That's helpful. And then as we think about kind of 2026 and beyond and your client, your go-to-market focus, can you comment on plans as it relates to trying to reaccelerate organic net client growth versus kind of cross-selling emphasis now in the base of clients you've acquired? You mentioned strong client retention year-over-year. But when we just do some of the math on the client count year-over-year and make some assumptions on the Paycor component, just curious how you're thinking about reaccelerating organic Paychex client growth.

Question: Bryan Bergin - Cowen and Company LLC - Analyst : All right, very clear. Thank you very much.

Question: Samad Samana - Jefferies LLC - Analyst : Hi, good morning. Thanks for taking my questions. Maybe the first one, just on Paycor and some of the assumptions and admittedly, I'm doing some back-of-the-envelope math on the fly here. But the 12% to 13% contribution for fiscal '26 implies kind of around $700 million at the midpoint for Management Solutions contribution. And then if I think about what Paycor was on track to do in terms of recurring revenue when it was still public, let's call it, a shade under $700 million. So it's not implying a lot of growth for Paycor in fiscal '26. And I'm trying to understand, are you assuming -- is that conservatism? Is there some assumption around churn? And again, I understand I'm doing the numbers on the fly but just help us reconcile what Paycor was growing versus what you're assuming for Paycor's growth.

Question: Samad Samana - Jefferies LLC - Analyst : Understood. And then as I think about the integration of the sales teams, any insights you can provide on maybe what percentage of Paycor's sales and marketing organization you guys were able to retain versus are you thinking more about hiring on that side? Or just help us understand how you're thinking about what those changes now look like between the two organizations? And maybe where there is some pruning and where there will be additions going forward?

Question: Samad Samana - Jefferies LLC - Analyst : Understood. Thank you so much for taking my questions. I appreciate it.

Question: Tien-Tsin Huang - JPMorgan Chase & Co - Analyst : Hey, thanks. It's nice to talk to you guys. Just want to clarify the impact of the sales disruption and then the comments on the higher bankruptcy and the mergers on the very low end. It sounded like those relatively small and perhaps you would have hit the high end of your guide if it wasn't for the delay in closing of Paycor. I just wanted to make sure I caught all of that.

Question: Tien-Tsin Huang - JPMorgan Chase & Co - Analyst : Yes, for sure. That makes sense. That's good color, John. Just on the -- just quickly then, just now that you've owned the asset and the cost synergies that you're talking about here, where was that last little bit of cost synergy coming from? I'm just curious if we're trying to collect a list of things that you've talked about in the past. What's been the final piece of the synergies? Where is that coming from?

Question: Tien-Tsin Huang - JPMorgan Chase & Co - Analyst : Okay, thank you so much.

Question: James Faucette - Morgan Stanley - Analyst : Great, thank you so much. I appreciate all the comments this morning. I want to go quickly to your capital allocation plans. And now that you've got the deal closed with Paycor, how should we think about mix between return to investors via incremental buybacks versus reduction in debt leverage, et cetera, and just how you're prioritizing that right now?

Question: James Faucette - Morgan Stanley - Analyst : Great. And then I wanted to ask just back on the macro. I understand kind of how you're characterizing the increases in kind of micro businesses, bankruptcies and some strategic decision-making. Is that a trend that you've seen persist so far in the beginning of your fiscal year? And is that at all -- like it seems like it's small, but I just want to make sure if it is persisting, if it's impacting the way that you're formulating your outlook at all?

Question: James Faucette - Morgan Stanley - Analyst : Great. Thanks for that color. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JUNE 25, 2025 / 1:30PM, PAYX.OQ - Q4 2025 Paychex Inc Earnings Call

Question: Andrew Nicholas - William Blair Capital Partners - Analyst : Hi, good morning, thanks for taking my questions. Just wanted to ask a few on synergies. I guess first, in terms of top line synergies, can you speak to maybe what's embedded in your outlook for '26? It sounds like you've already had some indications of cross-sell opportunity and cross-sell success into the PEO and ASO model. Is that something that you're assuming continues in '26? Is there anything that you could kind of quantify there? Or would momentum there be upside to what you've guided?

Question: Andrew Nicholas - William Blair Capital Partners - Analyst : Perfect. And yes, I missed that in the prepared remarks, so I appreciate it. And then maybe relatedly, just in terms of cadence of cost synergy realization, you've updated the number, $90 million in fiscal '26. Is there anything you could say about how much of that is front-end loaded? Or is there a steady ramp in terms of realized cost synergies throughout fiscal '26 that [we would model?]

Question: Andrew Nicholas - William Blair Capital Partners - Analyst : Thank you.

Question: Ashish Sabadra - RBC Capital Markets Inc - Analyst : Thanks for taking my question. I was just wondering if you can comment on checks per client, how that trended in 4Q, but also what your expectations are for fiscal year '26? And have you seen any impact from some of the things going on, on the immigration crackdown.

Question: Ashish Sabadra - RBC Capital Markets Inc - Analyst : That's helpful color. And maybe just a bookkeeping question. How should we think about the restructuring expenses impacting cash flow next year? Or is there a way to think about free cash flow growth in fiscal year '26?

Question: Ashish Sabadra - RBC Capital Markets Inc - Analyst : Thank you. Thanks.

Question: Kartik Mehta - Northcoast Research - Analyst : Hey, good morning, Bob and John. John, I know you talked a little bit about pricing and adding value, obviously, for clients. And pre-COVID, we were at a certain level for price. And obviously, a little bit after COVID, you're able to get better pricing than you were historically. As we move forward, where do you think you are on that price kind of realization? Do you think it's higher than it was pre-COVID? Or are you -- do you think you'll be at the same level?

Question: Kartik Mehta - Northcoast Research - Analyst : And just, Bob, on float, as you move forward in FY26, anything different you're going to do on float? There's a conversation about rates going down, conversation about rates going up. And it seems all very confusing, obviously. But I'm wondering if you're changing your strategy at all on the float portfolio.

Question: Kartik Mehta - Northcoast Research - Analyst : Thanks, Bob. I really appreciate it.

Question: Jason Kupferberg - Bofa Merrill Lynch Asset Holdings Inc - Analyst : Good morning, guys. Thank you. Can you just clarify what the organic outlook for Management Solutions specifically is in F '26? I mean based on the Paycor numbers you gave, I'm calculating around 4% to 5% organic. So I just wanted to check on that. And if you can also comment on whether or not the revenue synergies are a part of the organic guide. Thank you.

Question: Jason Kupferberg - Bofa Merrill Lynch Asset Holdings Inc - Analyst : Okay. Understood.

Question: Jason Kupferberg - Bofa Merrill Lynch Asset Holdings Inc - Analyst : Yes. And just, I guess, as a follow-up, so it sounds like we are talking about some acceleration on the organic part of Management Solutions in F '26 off of the 3% you just had in Q4. Maybe you can just kind of unpack the visibility and the pieces of that. And maybe just talk a little bit more about -- I think you said you're assuming a steady macro, but you've seen some hiccups in client decision-making. Like are you assuming that the worst is over in that regard and you see some normalization/improvement in underlying client decision-making?

Question: Jason Kupferberg - Bofa Merrill Lynch Asset Holdings Inc - Analyst : Understood. Thanks, John. Thanks, Bob.

Question: Scott Wurtzel - Wolfe Research LLC - Analyst : Hey, good morning, guys. Thanks for squeezing me in here. I wanted to ask on the PEO side. I know there's a lot of moving parts with the MPP plan and then also thinking about the cross-sell opportunity. But wondering if you can talk about some of the kind of core Paychex PEO trends you saw in the quarter? And how you're thinking about that as we move into fiscal '26 and think about that acceleration in the back half of the year once we lap the MPP headwinds? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JUNE 25, 2025 / 1:30PM, PAYX.OQ - Q4 2025 Paychex Inc Earnings Call

Question: Scott Wurtzel - Wolfe Research LLC - Analyst : Cool, I'll leave it there thanks guys.