Paychex, Inc.
PAYX · NASDAQ-GS
Next quarter
Reports Dec 18, 2026.
Consensus is $1.30 EPS for Nov 2026 across 6 estimates, ranging $1.27 to $1.37.
PAYX Aug 2026
- 0.75%
- $1.33
- $1.34
- —
- $1.58B
Reported results
- $1.58B
- 72.79%
- $619.20M
- 39.17%
- $429.70M
- $1.21
Highlights
- Adjusted EPS beat: Adjusted diluted EPS was $1.34, 0.75% above the $1.33 consensus, and up 10% year over year; GAAP diluted EPS was $1.21, up 14%.
- PEO led growth: PEO and Insurance Solutions revenue rose 12% to $367.6 million, supported by high-single-digit worksite employee growth, higher insurance volumes and strong client retention.
- Margins expanded: Operating income increased 14% to $619.2 million and operating margin widened 280 basis points to 38.0%; adjusted operating income grew 9% to $684.7 million and adjusted margin rose 130 basis points to 42.0%.
- Revenue increased 6%: Total revenue was $1.63 billion; Management Solutions grew 4% to $1.21 billion, while interest on client funds rose 5% to $49.8 million.
- Guidance tilted toward PEO: FY2027 PEO and Insurance Solutions revenue growth guidance increased to 7%–8% from 6%–7%, and interest on client funds guidance rose to $200–$210 million from $195–$205 million; total revenue growth guidance remains 5%–6%.
- AI deployments broadened: Paychex launched WISE Hire, reported more than 2,000 AI agents and features in use, and said AI-enabled payroll processing increased automation by nearly 20% from January through August.
- Shareholder returns and liquidity: Operating cash flow was $413.5 million, down from $718.4 million a year earlier, while dividends paid totaled $424.1 million, or $1.19 per share; cash, restricted cash and corporate investments were about $1.0 billion against $4.6 billion of long-term borrowings.
Analysis
Paychex began FY2027 with 6% revenue growth and double-digit GAAP operating income and EPS growth. Adjusted diluted EPS of $1.34 modestly exceeded the $1.33 consensus and rose 10% year over year; GAAP EPS was $1.21 versus $1.06. Revenue of $1.63 billion compared with $1.54 billion a year earlier. The supplied quarter history does not include Q4 FY2026 for a direct sequential comparison; against the latest earlier result on file, Q3 FY2026, revenue and earnings were lower, consistent with Q3’s year-end processing seasonality.
The central story was faster-than-planned PEO growth and a corresponding mix shift from Management Solutions. PEO and Insurance Solutions revenue rose 12% to $367.6 million, while Management Solutions grew 4% to $1.21 billion; management said the shift reflected stronger ASO-to-PEO upgrades and HCM sales referrals, rather than weaker pricing. Profitability also improved: operating margin expanded 280 basis points to 38.0%, helped by revenue growth and lower acquisition-related costs, while adjusted margin reached 42.0%. Paychex held total FY2027 revenue and adjusted EPS growth guidance at 5%–6% and 7%–9%, respectively, but raised PEO growth and client-fund interest outlooks. The quarter also featured expanded AI deployment, though management described AI investment as still in an early stage.
PEO mix and growth
PEO and Insurance Solutions was the standout growth area, with revenue up 12% to $367.6 million. Management cited high-single-digit worksite employee growth, increased insurance volumes, record PEO retention and strong upgrades from ASO clients. It said ASO-to-PEO conversions were twice expectations, while referrals from HCM sales teams into PEO rose nearly 50% year over year. Broker referrals increased 43%, and broker bookings benefited from higher average deal size and ancillary product attachment.
That strength pulled growth toward PEO and away from Management Solutions, which management characterized as a favorable mix change toward a higher-retention, higher-lifetime-value offering. Management Solutions revenue still increased 4% to $1.21 billion, driven by revenue per client through pricing and product penetration; executives said it was slightly below their expectations because of the faster-than-expected client migration, not weakening price realization. PEO growth guidance was raised, but management flagged upcoming October and January benefit enrollments as reasons for caution.
Margins and earnings
Operating income grew 14% to $619.2 million, and GAAP operating margin increased from 35.2% to 38.0%. Adjusted operating income rose 9% to $684.7 million and adjusted operating margin expanded from 40.7% to 42.0%. Revenue grew 6% while total expenses increased only 1%, as lower Paycor-related acquisition costs and continued efficiencies offset increased PEO insurance costs and investment in sales, technology and other priorities.
The difference between GAAP and adjusted growth reflects lower acquisition-related costs: $65.5 million this quarter versus $84.8 million a year earlier. Net income increased 12% to $429.7 million; diluted EPS rose 14% to $1.21, also benefiting from lower average diluted shares. Adjusted diluted EPS increased 10% to $1.34 and slightly exceeded the $1.33 consensus.
Outlook and Q2 cadence
- Full-year revenue: Total revenue growth guidance remains 5%–6%, as does Management Solutions growth guidance of 5%–6%.
- PEO and interest income: PEO and Insurance Solutions growth guidance increased to 7%–8% from 6%–7%; interest on funds held for clients is now expected at $200–$210 million versus $195–$205 million previously, reflecting the latest short-term rate change.
- Margins and EPS: Adjusted operating margin guidance remains approximately 44%, and adjusted diluted EPS growth guidance remains 7%–9%.
- Second quarter: Management expects revenue growth of about 4% and adjusted operating margin of about 40%. Last year’s Q2 included a revenue-synergy benefit and realized portfolio gains; excluding those items, management said expected revenue growth would be roughly in line with Q1’s 6%.
AI in operations and products
Paychex reported more than 2,000 AI agents and features deployed across the business, up from about 600 active agents a quarter earlier, and said more than 10,000 employees had been given AI tools. Agentic payroll capabilities increased automated payroll processing by nearly 20% from January through August. In a pilot involving more than 50,000 businesses, the WISE engine helped prevent approximately 90% of the targeted payroll errors.
The company launched WISE Hire, an agentic recruiting solution for small and midsized businesses, and is extending WISE into Microsoft applications. Paychex also said it is investing five times as much in AI in FY2027 as in the prior fiscal year. Management cited early internal productivity and customer-outcome benefits, while describing customer-facing AI monetization as still at an early stage.
Cash flow and capital
- Operating cash flow: $413.5 million, compared with $718.4 million in the year-ago quarter; management attributed the decline principally to timing of client and corporate tax payments and other working-capital movements.
- Shareholder returns: Dividends paid were $424.1 million, or $1.19 per share, versus $389.1 million and $1.08 per share a year earlier. No shares were repurchased during the quarter.
- Balance sheet: Cash, restricted cash and corporate investments totaled approximately $1.0 billion at quarter end; long-term borrowings were $4.6 billion, and $2.0 billion of credit facilities remained available.
