Paychex, Inc. Q1 FY2026 earnings call

• Strong start in fiscal year 2026 with 17% revenue growth and 5% adjusted diluted earnings per share growth. • Progress integrating Paycor on track to achieve targeted revenue synergies and exceed cost synergy expectations, with a $90 million cost synergy target. • Partnerships with channel partners like brokers, CPAs, and banks, with initiatives like Partner Plus for brokers and CPA Partner Pro portal. • Innovation in AI, including expanding AI Insights to PEO clients, deploying AI tools across the organization, and piloting Agenic AI solutions. • PEO business performing well with mid-single-digit worksite employee growth and strong demand and retention. • Small businesses remain resilient with stable employment and moderating wage inflation.

Total revenue increased 17% over the prior year to $1.5 billion. Management Solutions revenue increased 21% to $1.2 billion, primarily due to the addition of Paycor and higher revenue per client. Paycor contributed approximately 17% to Management Solutions revenue growth year over year. PEO and Insurance Solutions revenue increased 3% to $329 million, primarily driven by solid growth in the number of average PEO worksite employees. Interest on funds held for clients increased 27% to $48 million due to the inclusion of the Paycor balances.

• Reaffirm fiscal 2026 outlook with total revenue expected to grow between 16.5% and 18.5%, Management Solutions expected to grow 20%-22%, PEO and Insurance Solutions expected to grow 6%-8%, interest on funds held for clients expected $190 million-$200 million, adjusted operating income margin expected ~43%, and adjusted diluted earnings per share expected to grow 9%-11% (up from 8.5%-10.5% previously). • Anticipate total revenue growth of approximately 18% in Q2 with an adjusted operating margin of approximately 41%.

Q: Jared Levine asked about the demand environment and Paycor SLO growth A: John Gibson said demand remains consistent, with RPO booking up double digits, and Bob Schrader noted Paycor recurring revenue growth was in line with expectations and expected to be a double-digit grower full-year Q: Mark Marcon asked about the PEO environment and direct expenses A: John Gibson said PEO continues to perform well with mid-single-digit worksite employee growth and strong bookings, and Bob Schrader added PEO was better than expectations in the quarter and expense growth strip out of Paycor acquisition was around 3% Q: Samad Samana asked about Paycor recurring revenue and Management Solutions organic growth A: Bob Schrader and John Gibson discussed Paycor recurring revenue growth being in line with expectations and Management Solutions organic growth with factors like PEO MPP headwind and revenue synergies building Q: Tien-Tsin Huang asked about EPS increase and retention A: Bob Schrader said increased confidence in synergies led to EPS increase, and John Gibson talked about strong payroll client and revenue retention and continued small business bankruptcies in low end Q: Andrew Nicholas asked about PEO market competitiveness and Bill partnership A: John Gibson discussed PEO market competitiveness with holistic value proposition and Bill partnership focused on adding value to HCM bundle for small businesses Q: Michael Infante asked about Bill partnership and PEO agency dynamic A: John Gibson talked about Bill partnership integrating with Flex application and Bob Schrader said no difference in ASO and PEO mix shift from past Q: Daniel Jester asked about AI pilot and revenue synergies A: John Gibson discussed AI pilot's impact on productivity and value proposition, and revenue synergies with good progress in cross-sell and pipeline growth Q: David Paige asked about regulatory environment A: John Gibson said small businesses are resilient and Paychex not heavily concentrated with federal government so not expecting big impact Q: Scott Wurtzel asked about cost synergies and retirement business A: Bob Schrader said most cost synergy actions behind us with additional opportunities in procurement, and Bob Schrader noted retirement business had near double-digit growth in Q1