Why did GAAP earnings decline while adjusted earnings grew?

Fourth-quarter GAAP diluted EPS fell 22% to $0.82, largely due to acquisition-related costs of $166.4 million in net income terms tied to the Paycor acquisition, including amortization of acquired intangibles, integration compensation, and higher interest expense. Adjusted diluted EPS, which excludes these costs, rose 6% to $1.19.

How much did the Paycor acquisition contribute to revenue growth?

Management Solutions revenue rose 12% in the fourth quarter, but growth excluding Paycor was approximately 3%. Interest on funds held for clients rose 18%, and excluding Paycor it increased approximately 3%.

How did the company finance the Paycor acquisition, and how did its debt change?

Paychex issued corporate bonds, with proceeds of $4,180.9 million in fiscal 2025 shown in the cash flow statement. Short- and long-term borrowings, net of debt issuance costs, reached $5.0 billion at May 31, 2025, an increase of $4.1 billion over the prior year-end, and investing cash outflows for acquisitions totaled $3.3 billion.

What does the fiscal 2026 outlook imply for investors?

The company guided to total revenue growth of 16.5% to 18.5%, adjusted diluted EPS growth of 8.5% to 10.5%, and adjusted operating margin of approximately 43%. The outlook excludes acquisition-related costs and depends on macroeconomic conditions, and the guidance includes interest on funds held for clients of $190 million to $200 million.

Are the non-GAAP measures comparable to GAAP results?

The company states that adjusted operating income, adjusted operating margin, adjusted net income, adjusted diluted EPS, EBITDA, and adjusted EBITDA are not U.S. GAAP measures and should not be used in isolation. It notes that these measures may not be comparable to similarly named measures used by other companies. The reconciliations in the release show the adjustments, mainly acquisition-related costs and prior-year cost optimization initiatives.

PAYX 8-K: Earnings & Results

01—Abstract

Summary

Summary of the 8-K filed June 25, 2025. Cited figures are marked; the original filing is the authoritative source.

Paychex, Inc. reported results for the three and twelve months ended May 31, 2025 (fiscal 2025) in a press release furnished as Exhibit 99.1 to this Form 8-K.

Fourth-quarter total revenue rose 10% to $1.4 billion^a ($1,427.3 million), driven by the acquisition of Paycor and higher revenue per client, while operating income fell 11% to $431.1 million and diluted EPS fell 22% to $0.82. Excluding Paycor, Management Solutions revenue grew approximately 3%. Adjusted diluted EPS rose 6% to $1.19, and adjusted operating margin was 40.4%.

Results reflect acquisition-related costs of $145.6 million^b in the quarter, which the company excludes from its non-GAAP measures. For fiscal 2025, total revenue increased 6% to $5.6 billion, operating income increased 2% to $2.2 billion, and diluted EPS decreased 2% to $4.58, while adjusted diluted EPS increased 6% to $4.98. Borrowings rose to $5.0 billion, an increase of $4.1 billion, primarily to finance the Paycor acquisition, and the company paid $1.4 billion in dividends.

Management described the completion of the Paycor acquisition as strengthening its upmarket capabilities and expanding its addressable market. For fiscal 2026, Paychex guided to total revenue growth of 16.5%^c to 18.5%, adjusted diluted EPS growth of 8.5% to 10.5%, Management Solutions revenue growth of 20.0% to 22.0%, PEO and Insurance Solutions revenue growth of 6.0% to 8.0%, and an adjusted operating margin of approximately 43%. The company expects to file its Form 10-K before the end of July 2025.

02—Key points

Key Highlights

Q4 fiscal 2025 total revenue increased 10% to $1,427.3 million, including the Paycor acquisition; Management Solutions revenue rose 12%, or approximately 3% excluding Paycor.
Q4 operating income decreased 11% to $431.1 million, with operating margin of 30.2% versus 37.2% a year earlier, reflecting acquisition-related costs of $145.6 million.
Q4 adjusted operating margin was 40.4% versus 40.2%, and adjusted diluted EPS rose 6% to $1.19; GAAP diluted EPS fell 22% to $0.82.
Fiscal 2025 total revenue increased 6% to $5.6 billion; diluted EPS decreased 2% to $4.58 and adjusted diluted EPS increased 6% to $4.98.
Borrowings reached $5.0 billion at May 31, 2025, up $4.1 billion, mainly to finance Paycor; operating cash flow was $2.0 billion.
Fiscal 2026 outlook: total revenue growth of 16.5% to 18.5%, adjusted diluted EPS growth of 8.5% to 10.5%, and adjusted operating margin of approximately 43%.
Fiscal 2025 shareholder returns included cumulative dividends of $4.02 per share (about $1.4 billion) and repurchases of 828,855 shares for $104.0 million.

03—Questions

Frequently Asked Questions

Why did GAAP earnings decline while adjusted earnings grew?
Fourth-quarter GAAP diluted EPS fell 22% to $0.82, largely due to acquisition-related costs of $166.4 million in net income terms tied to the Paycor acquisition, including amortization of acquired intangibles, integration compensation, and higher interest expense. Adjusted diluted EPS, which excludes these costs, rose 6% to $1.19.
How much did the Paycor acquisition contribute to revenue growth?
Management Solutions revenue rose 12% in the fourth quarter, but growth excluding Paycor was approximately 3%. Interest on funds held for clients rose 18%, and excluding Paycor it increased approximately 3%.
How did the company finance the Paycor acquisition, and how did its debt change?
Paychex issued corporate bonds, with proceeds of $4,180.9 million in fiscal 2025 shown in the cash flow statement. Short- and long-term borrowings, net of debt issuance costs, reached $5.0 billion at May 31, 2025, an increase of $4.1 billion over the prior year-end, and investing cash outflows for acquisitions totaled $3.3 billion.
What does the fiscal 2026 outlook imply for investors?
The company guided to total revenue growth of 16.5% to 18.5%, adjusted diluted EPS growth of 8.5% to 10.5%, and adjusted operating margin of approximately 43%. The outlook excludes acquisition-related costs and depends on macroeconomic conditions, and the guidance includes interest on funds held for clients of $190 million to $200 million.
Are the non-GAAP measures comparable to GAAP results?
The company states that adjusted operating income, adjusted operating margin, adjusted net income, adjusted diluted EPS, EBITDA, and adjusted EBITDA are not U.S. GAAP measures and should not be used in isolation. It notes that these measures may not be comparable to similarly named measures used by other companies. The reconciliations in the release show the adjustments, mainly acquisition-related costs and prior-year cost optimization initiatives.

04—Continue

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