Thank you for joining us to discuss Paychex's third quarter fiscal 2026 results. Our earnings release and presentation are available on our Investor Relations website.

We plan to file our Form 10-Q within a couple of business days. This call is being webcast live and will be available for replay on our Investor Relations portal.

Today's call includes forward-looking statements that refer to future events and involve some risk. We encourage you to review our filings with the SEC for additional information on factors that could cause actual results to differ from our current expectations.

We will also reference non-GAAP financial measures. A description of these items, along with a reconciliation of non-GAAP measures, can be found in our earnings release.

I would now like to turn the call over to John Gibson, Paychex's President and CEO.

Thanks, Bob. Hello, everyone.

I'll cover this quarter's operational highlights, and Bob will come back and discuss our financial results and outlook, and then we'll open it up for your questions. We delivered a strong quarter with revenue up 20% and adjusted operating income up 22% year-over-year, driven by effective execution and progress advancing our strategic priorities, most notably the Paycor integration and acceleration of our transformational AI initiatives.

In this very dynamic environment, financial strength is important, and our free cash flow generation continues to be robust, as Bob will highlight later. Amid a dynamic macro backdrop, our clients' workforce levels remained stable, supported by our solutions that help manage costs and source talent in a tight labor market.

In a highly regulated industry, our compliance depth, advisory expertise, and award-winning platforms provide a clear competitive advantage in navigating a constantly changing and complex regulatory environment. As we embed AI into our expert-enabled technology, we are strengthening that advantage by leveraging our vast data to scale our expertise, enhance productivity, and elevate client outcomes.

As you all know, we operate in HR, benefits, and payroll, some of the most mission-critical aspects of a business, and we are honored that 800,000 clients rely on us for trusted support and advice. For many of our clients, we effectively serve as their HR department, managing a foundational part of their business: their people.

Errors paying employees, withholding taxes, or administrating benefits carry significant regulatory and reputational risk, driving demand for trusted compliance solutions where accuracy matters most. Demand for our comprehensive advisory and benefits solutions remains strong, differentiating us from the tech-only providers.

Clients are increasingly turning to our HR professionals for strategic advisory expertise and assistance over routine transactional support. Robust revenue growth in retirement, ASO, and PEO highlights the durability of our model and reinforces our expectations of a long secular growth runway for these businesses.

Our ASO and PEO worksite employee growth continues to outpace the industry, reflecting our value in navigating regulatory complexity and ensuring compliance, often for clients with no or, as I said, limited HR support. Our PEO business remains strong, with high single-digit worksite employee growth driven by robust demand and record retention rates.

Our PEO solution empowers small businesses to offer competitive benefit packages on par with Fortune 500 companies, aiding talent attraction and retention in a tight labor market. January enrollment in our at-risk Florida MPP medical plan went well and in line with our expectations, helping drive sequential revenue growth.

We received positive feedback on the new AI-driven Benefits Intelligence we embedded in the enrollment workflow this year. It leverages employee-specific data to recommend plan choices and streamline benefit selection.

We continue extending our SMB benefit leadership with Paychex Perks, our award-winning digital marketplace offering affordable, transferable benefits to our clients' employees. Perks is a compelling growth opportunity that empowers our clients to offer meaningful benefits with no added cost to the employer or administrative burden.

In the first 18 months, Perks has grown to over 25 benefit offerings, with purchases from nearly 350,000 unique employees, creating a direct end-user relationship with portable benefits that they can keep if they change employers. By bringing enterprise-level benefits down-market, we are enabling our clients to better compete for talent and addressing a historically underserved market.

The Paycor integration continues to progress well. We remain on track to exceed our fiscal '26 synergy targets we discussed last quarter.

Leading indicators such as bookings and broker referrals have reaccelerated to pre-acquisition levels, and we are adding sales headcount to capture the demand we see. We are gaining momentum cross-selling Paychex ASO, PEO, and retirement solutions to Paycor's clients, and we continue to win larger-than-expected ASO deals and broker-referred PEO opportunities.

This momentum reflects the hard work and alignment of our teams and positions us well going into fiscal year '27. Our Paychex Flex and Paycor platforms were recognized as industry-leading HCM solutions with two 2026 Lighthouse Tech Awards.

This achievement underscores our commitment to empowering businesses with modern, AI-powered solutions that simplify HR processes and drive business outcomes. Integral to our growth strategy, we continue to accelerate in embedding AI into our workflows.

This amplifies our expertise with human-in-the-loop oversight and strong governance. We now have over 500 AI-powered capabilities and agents that can drive higher productivity and smarter decisions and outcomes.

Our generative AI-powered employment law and compliance platform processed tens of thousands of inquiries this quarter, helping clients and Paychex HR experts navigate complex and always-changing wage and employment law. Internally, we are expanding AI use cases to enhance the client experience and sales effectiveness.

Following successful pilots last quarter, we are scaling the use of our voice and email agents for payroll processing, enabling service teams to focus on proactive, higher-value advisory support. We also expanded our agentic AI sales and service tools to the entire sales team with a goal to drive revenue growth and efficiency.

AI agents orchestrated real-time information across service and product systems, equipping thousands of service personnel to support clients more effectively. This agent swarm architecture really removes prior friction and serves as a foundational capability to future agentic developments.

Our strategic AI investments are bolstering our leadership in HCM innovation. We are moving from insight and efficiency tools to proactive agents that leverage our vast and growing dataset to complete work to drive business success.

Payroll and HR, as we know, are mission-critical and highly regulated functions where accuracy and compliance matter more than automation alone. We believe Paychex's proprietary payroll data, regulatory expertise, and advisory relationships create a sustainable advantage that will enable us to respond and responsibly embed AI into our solutions while maintaining a durable competitive moat.

In our business, trust is critical. It's not just what you do, but it's how you do it that matters to prospects, clients, partners, employees, and key stakeholders.

That's why I'm proud that Paychex was once again named one of the World's Most Ethical Companies by Ethisphere for the 18th time. This rare achievement highlights our unwavering commitment to ethical operations and corporate responsibility.

Supporting communities is also integral to our identity, and I am pleased that Paychex was recognized as a leading corporate partner by United Way Worldwide, reflecting our commitment to making a positive impact where we live and work. Lastly, I'd like to thank our team for the exceptional hard work during this busy year-end season and through a very, very challenging year of integration.

The work that they've done to support our clients, to come together, is truly exceptional, and I think really is positioning us well as we move into fiscal year '27. I will now turn the call over to Bob to discuss our financial results and outlook.

Thank you, John. I'll start with our third quarter financial results, then provide an update on our outlook.

Total revenue increased 20% over the prior year to $1.8 billion. This represents an acceleration in the organic growth of the business relative to the first half of the year.

Management Solutions revenue grew 23% to $1.4 billion, driven by product penetration and price realization. Paycor contributed approximately 19 percentage points to growth.

PEO and Insurance Solutions revenue increased 9% to $398 million, driven primarily by strong growth in the number of average PEO worksite employees, as well as an increase in PEO insurance revenues. Interest on funds held for clients increased 33% to $57 million, largely due to the addition of Paycor balances.

Total expenses increased 24% to just over $1 billion, primarily driven by the Paycor acquisition. Excluding Paycor, we estimate that expenses grew in the low single digits during the quarter.

Operating income margin was 43.8%, and adjusted operating income margin increased approximately 80 basis points to 47.7%, driven by increased productivity and cost discipline while increasing our investments in AI. Diluted earnings per share increased 9% to $1.56 per share, and adjusted diluted earnings per share increased 15% to $1.71 per share.

Our financial position remains strong, with cash, restricted cash, and total corporate investments of $1.8 billion, and total borrowings of approximately $5 billion as of the quarter close. Our cash flow generation continues to be a strength of our model.

Operating cash flows were nearly $2 billion year-to-date, and our free cash flows increased 27% year-over-year. After the quarter close, we did repay the initial $400 million tranche of debt from our Oasis acquisition that matured in March.

Our recent $1 billion stock repurchase authorization underscores our commitment to delivering long-term shareholder value. We returned $463 million this quarter and over $1.5 billion year-to-date to shareholders in the form of cash dividends and share buybacks, and our 12-month rolling return on equity remains robust at 41%.

Shifting to our guidance for FY '26, which is based on current market conditions, we reaffirm our prior fiscal '26 outlook except for raising our interest on funds held for client expectations. Interest on funds held for clients is now expected to be in the range of $200 million to $210 million.

All other guidance metrics remain unchanged. I'm going to turn to the fourth quarter to provide you a little bit of color on the fourth quarter.

We would anticipate fourth quarter growth to be approximately 12% with an adjusted operating margin of 41% to 42%. The fourth quarter growth rate reflects a couple of dynamics: first and foremost, I think most of we anniversary the Paycor acquisition during the quarter, and to a lesser extent, Q3 benefited modestly from the timing of certain items relative to Q4.

However, our second-half outlook remains consistent with our expectations in the organic revenue growth acceleration we saw in Q3. We believe Paychex has never been better positioned to succeed in the AI era of HCM and deliver shareholder value.

Our business fundamentals remain strong. As the best operators, we have unrivaled operating and free cash flow margins with an opportunity for further expansion.

Our financial strength and the durability of our business model are evident in our consistent performance as a Rule of 50 company. We are committed to returning capital to shareholders and confident in our ability to deliver sustained value through continued revenue and earnings growth.

I will now turn the call back over to John for questions.

Thank you, Bob. We will now open the call to questions.

Hi, guys. Good morning.

Thank you. Bob, can you put some finer points just first on the level of organic growth in the third quarter and then bridge that forward to your commentary on the fourth quarter?

If you can kind of unpack that 12% growth across the business, I think that would help.

Bryan. I think consistently, even if you go back to Q4 of last year, the organic growth of the business has been a bit weaker.

I think a lot of that had to do with comparability issues, particularly in the PEO business with our MPP plan in Florida. If you go back to Q4 of last year, I think we've seen sequential improvement each quarter in the organic growth of the business.

If you look at the first half, total revenue organic growth was roughly 4%, and that improved from Q1 to Q2. Then when you look at the back half, whether it's Q3 or Q4 combined, we would expect it accelerated in Q3, and we would expect to see similar organic growth performance in Q4.

You're now getting to a back-half organic growth rate that's closer to 6%, and then when you put the two of those together, it's roughly 5% on a full-year basis. Again, I think there's a couple drivers of it.

One, to be fair, is the easier compare on the PEO business. I think you'll see that the headline PEO number sequentially went from 6% last quarter to 9%.

There are some timing things there, but there's certainly strength in the underlying operating performance of the business, particularly in the PEO, and we can get into that probably in maybe some later questions. We did anniversary the headwind from the MPP enrollment, and so that's why you're definitely seeing the combination of an easier compare, stronger operating performance driving accelerated organic growth in the back half of the year.

Okay. As far as the 4Q exit rates that are implied, as we think forward into fiscal '27, any important considerations that you want

to share? Maybe head off the question that I'm probably going to get as it relates to next year and guidance.

We're in the early stages, I would tell you, of our operating plan, and we're going to finalize that over the next six to eight weeks. I know we kind of established a precedent coming out of COVID in providing maybe some more details around what we were thinking for next year.

I think we needed to do that given some of the uncertainty in the environment back then. Our preference now is to kind of build the plan, come out in Q4 like we historically did, and consistent with what our competitors do, and provide guidance at that point in time.

That being said, we obviously have visibility to what's out there in the models and in FactSet, and when I look at that, I really don't see any reason that I need to steer you in one direction or another. I'm fairly comfortable with what's out there, and I think, Bryan, what you'll see is the organic growth rate, whether it's Q3 or Q4, really looking at the back half, because there are some timing differences, particularly in the PEO, between Q3 and Q4.

When we look at the organic growth rate in the back half of this year, it pretty much aligns with kind of what's assumed from a consensus standpoint for next year.

Thanks for taking my questions. Nice performance this quarter.

I'm wondering if you could talk about a couple of things. One, you did mention that Paycor was seeing new broker engagements or a renewal of some of the broker engagements and that pipeline.

I was just wondering if you could just talk about new sales, generally speaking, during the core selling season. What did you end up seeing this year, and how would you describe the competitive environment, win rates, etc.?

Hey, Mark. This is John.

I'd say the competitive environment is stable and the same. It's competitive.

I wouldn't say I've seen much change there. From a sales perspective, look, very pleased with our performance in Q3.

Not only aligned with our expectations, but quite frankly, we were accelerating part and bookings growth in the third quarter. We've kind of seen that sequentially as we've come out of the disruption, as at the start of the year with the integration of the teams.

Continued to grow there: PEO, double-digit bookings; Paycor, double-digit bookings as well. We actually see bookings and the part referral continuing to accelerate back to pre-acquisition levels.

We're actually adding headcount in the enterprise space. Again, remember, Paycor for us is a brand for the enterprise market, 100-plus, and we think that's a great opportunity for our HR outsourcing services as well as technology solutions, and so we're going to continue to go after that as well.

We continue to gain momentum, I think, across the board, and we feel good about where we are positioned going into '27, both in terms of our competitive positioning, our headcount. I think you really look at it, we're entering '27 with all of the integration work behind us that we did early in the beginning of this fiscal year, and we're entering with not only an aligned team, but really the most comprehensive and, I think, flexible and innovative set of solutions in the marketplace.

I feel good about where we are.

That's great to hear. Then I thought the gross margin performance was particularly impressive before defining gross margin as revenue minus direct costs.

Part of that was obviously the higher interest income off of the float. Beyond that, it looks like it's doing extremely well.

How much of that is related to some of the AI initiatives that you've put in place in terms of embedding AI across your service infrastructure and making them more productive versus other initiatives that you've put in place in terms of perhaps shifting some of your costs to lower-cost labor markets like India? How much more can we do there?

Because it's been fairly impressive. I'm wondering if this is basically setting us up for continued margin expansion for multiple years.

Mark, I think that we have a long track record of being able to drive, as the best operators, margin expansion as we grow revenue in the business, and I think you're going to continue to see that. We use every lever imaginable to do that.

I think that when you look at AI, as we've been using AI and predecessor-type of models for many, many years since I've been here. Now with this new technology that almost every day something new is coming out, what we're seeing is pretty impressive.

It's pretty incredible. Some of the things we're doing in terms of agentic AI models, which we've now released to scale after the pilots, doing voice payroll, doing email payrolls, what we're seeing early stages in our beta groups in sales using our Sales Guru tool, and what we're seeing from a service perspective.

I feel good about what the opportunities are. Look, if we grow the top line, we are going to be able to grow margins and expand margins over time.

Then when you look at these new tools that we can put in our arsenal as the best operator, I really feel good about where we are. I would say that's part of the thing on '27, we're just getting in.

That's a big debate right now. I think that's the big question is, how do you begin to quantify the real positive impact from sales productivity, the way we're using it in marketing, what the potential is from a service perspective?

I can assure you we're going to have some very lively discussions next week during our planning sessions about exactly the potential that this technology has both to drive the top line, but also to continue to expand margins. I think there's more room ahead, and every year something new comes out, and we are innovators in that regard and are going to grab every tool we can to continue to drive efficiency.

Hey, thanks. Hi, John and Bob.

I wanted to ask on the advisory work. John, I think that's probably underappreciated in terms of what Paychex does there.

How AI-proof is the advisory side of the business? Because I get the question quite a bit that can rules-based advice from AI come in and supplant what Paychex does on the advisory side?

I'm guessing that a lot of your advisory work is centered around compliance and very complex data issue that only Paychex has. Can you maybe elaborate on that?

Tien-tsin, I think this is something I think is extremely interesting for people to understand. For the vast majority of our clients, we are their HR department, right?

Not only do we provide them the advice, we literally are talking to them and holding their hand when they're making some of these decisions and supporting them. You look at our PEO, the most comprehensive part of our model, we're actually in a co-employment arrangement.

We're actually helping represent them and deal with their employee situations, which are numerous, I may add, in today's world. We're actually doing so much more that there's no way that I think technology is going to replace that, at least that I see in the short term.

Now, your point is, we actually own the patent on using agentic AI in a mesh form and structured and unstructured data to answer HR and compliance data. Why is that?

Because we have a huge compliance regulatory team that's constantly keeping that system up to date. What I will tell you is the changes in Akron, Ohio, are not automated.

Someone has to go onto Akron's website, has to look at it, has to interpret it, has to watch what's going on in Ohio courts to understand how it's being interpreted, and then put that into a system to be able to respond to a client who's asking a question about whether or not they can terminate a client in Akron, Ohio, or not. I think that we've got the AI-embedded tools, and now we've actually launched those tools with our HR generalists.

We're actually seeing pretty significant productivity improvements since we've done that. Our clients, we're embedding that into our platforms so our clients can gain access to that.

I think that's going to drive more efficiency. At the bottom line, for most of our clients and increasingly up-market, we are becoming the HR department and HR partner for helping people manage people.

As long as our clients have people, they're going to need Paychex holding their hand and helping them understand how to work with those people, in my opinion.

Yeah. No, well said.

Your opinion is very important, John. That's why I'm asking you.

Thank you for going through that. Maybe just as a follow-up, thinking about these agents as they get deployed, and as you said, the proprietary data that you have, does this get monetized through your normal weight pricing that you typically would put through in the spring, or do you think of this as a new monetizable opportunity for Paychex?

I think we've been monetizing our data and providing insights going back to the early days. In 2022, we won the best use of AI in HCM with our retention insights.

That was before all this AI madness befell us. The fact of the matter is that we've been doing that.

We monetize that with our clients. It actually provides them insights about how to retain their clients.

I think what you're seeing today is we're applying it into our products and services to improve the user experience. We're putting it in there to be able to improve really the insights that we can provide in other areas such as benefits.

We mentioned what we're doing in the PEO, which was just phenomenal, the way the tool helped advise clients' employees on what benefits package was right for them. I think you're going to continue to see us use it to really drive better outcomes.

You made a critical point: in order for AI to work, you have to have a large, robust dataset. The other thing that we've learned, and particularly when we're building the agentic AI models for payroll, you had to have a constantly moving set of data.

The way I look at it is this flywheel effect. Now that we're capturing every interaction that we have from an HR, payroll, and compliance perspective with our clients through every form of communication, every interaction we have with them or one of their employees adds to our dataset.

With our tools constantly looking and doing the analysis around what are common trends, we're getting more insights, and those insights are allowing us to be more proactive with our clients. As the transactional work gets automated, it frees up our time to be able to gain the more insights, and then that system is proactively giving our HRGs a list of insights that they can then call clients and make recommendations on, whether that's compensation, whether that's retention, whether that's workplace trends that we're seeing in specific geographies that they need to be aware of.

I think it's just going to continue to improve the value proposition that we have, and I think it's also going to improve the outcomes that our clients see.

Yeah. Hi, good morning.

Was hoping you guys could just talk a little bit about the strength of PEO and insurance. It jumped above the range at 9%.

Can you talk a little bit about some of the drivers and some of the sustainability as we head into the fourth quarter?

Maybe I'll start, and then John can add some color. I think it's twofold, Bryan, as I alluded to earlier.

I think it's strength in the underlying operating performance of the business. We saw double-digit demand for PEO.

We continued to see record WSE retention in the PEO. We saw high single-digit worksite employee growth.

PEO business is all about worksite employees, and we continue to outpace the competitors in that space with our ability to drive worksite employee growth. The underlying operating performance is strong.

January is the big annual enrollment, we anniversary two things: we anniversary the tougher compares from the prior year when MPP was down, but we got through that annual enrollment, and I would tell you, enrollment in our MPP is up modestly. You have an easier compare, we grew the enrollment, and then when you zoom out a little bit and you look at medical enrollment across all the PEO, not just the at-risk business in Florida, but across the entire PEO space, our medical enrollment was up high single digits, near double digits, as we went through this annual enrollment period.

I think that's the strength of the PEO value proposition: the ability for us to offer to our small business clients the ability to offer medical insurance and workers' comp insurance leveraging our scale to be able to offer affordable benefits to them. We had a pretty good year-end enrollment related to that.

It's really a combination of all those factors. I would also just say, and I've alluded to this a little bit, on the agency side, we had some timing benefit.

You get some timing between Q3 and Q4 between carrier bonuses. SUI revenue can be a little bit stronger in Q3, a little bit weaker in Q4.

Relative to our expectations, there was a little bit of timing that came into Q3, but all in all, really strong performance and pretty much what we planned in the back half of the year, and it's nice to see that coming to fruition.

I just want to add to this. The PEO performance is amazing, outpacing the industry, I think, rather significantly: double-digit revenue growth, double-digit bookings, seeing success up-market.

I think this is another point, again, I'll make. It's going to be interesting.

We're having success with the Paycor sales team into the broker channels positioning PEO up front. This is one of those what I call revenue geography problems.

A Paycor rep is out and they're talking to a broker. What would have normally been, because all they had was HCM to sell, was going to be an HCM sell, all of a sudden the discussion comes about what the problem is, and we've got multiple solutions.

Now we're selling a PEO, and it's larger deals than what we typically would see coming in. In January, that was another big positive that quite frankly I think is going to continue to help us move forward.

I would also say, because I do want to say this, look, the agency was certainly still a drag in the quarter to the segment, but we saw sequential improvement. I'd actually say even in bookings, which is the precursor to revenue moving, we actually saw solid bookings there in the quarter.

I'm pleased with the team's made a lot of changes there. We've made some changes in the agency.

We're trying to be more innovative, because the market is the market. Healthcare issues are healthcare issues.

Soft workers' comp is soft workers' comp. We're building strategies to work around those situations, and the team is making some progress there.

That also contributed a little bit as well. The other thing that I would point out for you guys to go back and look at, and I think it's probably a story that we plan on duplicating in the enterprise space: if you go back and look at our PEO success, and you go back to 2020 through 2025, and look at those five years, I think you're going to find that our CAGR of worksite employee growth is in the double digits and far surpasses any of the other providers that I'm aware of, both public and private, in terms of growth.

Now, what was the setup for that? 2018, we make an acquisition of Oasis.

Prior to that, we made a decision that strategically we were going to position the company as an HR advisory company, that we believe there was more than technology that our clients were going to need and want, and we started to really grow our business organically. We then went and made an acquisition.

One year after that acquisition, we're growing that business at industry and we're gaining share in that industry. I think that's exactly what you should expect us to try to do, and we are doing, with the Paycor acquisition.

We saw the opportunity to take HR advisory solutions up-market. We wanted more capability to be able to do that, more distribution.

Now we're a year into it, and I think we're well positioned to duplicate the story that we did in PEO in the enterprise space.

Got it. Got it.

Just a quick follow-up, Bob. The 12% revenue growth you called out for Q4, I think that's a point below the Street,

but

it sounds like some timing, maybe there was a slight benefit, some of the stuff you just talked about, obviously, in the PEO business from Q3 to Q4. The organic growth doesn't move much.

Maybe just talk about some of the benefit, maybe if Q3 should be stronger organically than Q4.

No, I think you would probably see a slight uptick, a continued acceleration in the organic growth of the business in Q4 relative to Q3, we should see sequential improvement there. As you guys know, we don't give quarterly guidance.

I'm trying to give you some color each call to help you with your models going forward. I would tell you we were intentionally conservative last quarter when we kind of provided some color on Q3.

Obviously, Q3 is a big quarter for us. You have year-ends, you have selling season, we have our year-end processing fees, which is a lot of money and margin that hits in the month of January.

We had our large enrollment in the PEO. We were intentionally conservative.

I would tell you Q3 was in line, a bit better than our expectations, and as I mentioned, there were some puts and takes between Q3 and Q4, and largely the back half of the year was in line with our expectations. Again, you'll continue to see some sequential improvement in the organic growth of the business, which I think positions us well, as John mentioned, as we move into FY '27.

Hi, guys. Good morning.

This is Daniel on for Andrew today. Thanks for taking my questions.

Real quick, just turning back to the revenue timing, it sounds like that was mostly concentrated in PEO. Is there any way you can size how large that was, and looking forward, can sequential growth in PEO specifically continue into the fourth quarter off of that?

I think the growth rate in Q4 will be lower because of some of those things. I don't have the exact percentage, and I think, again, if we look at the two quarters combined, Daniel, or if you look at back half, because of some of those puts and takes between the quarter, you'll see a fairly significant lift in the organic sequential growth of the PEO and insurance in the back half relative to the first half.

The overall growth rate, I think when you start doing the math, you'll see that the math is going to show you that the growth rate is going to be a little bit lower in Q4 than Q3, but when you put the two of them together, it's a fairly big step up in the sequential organic growth relative to the first half of the year.

Great. That's helpful.

Then for my follow-up, going back to the mention of a reacceleration of referrals and bookings to pre-acquisition levels, can you give any incremental detail on specific areas of momentum there, and maybe just level set after a few quarters of integration where the lion's share of the synergy opportunities now sit, whether that's on the revenue or the cost side?

Daniel. What I would say is very pleased with the acceleration we've seen each quarter as we came through the first quarter when we did all of the reorganization.

As we talked about, we made a conscious decision when the deal closed almost a year ago now, April a year ago, that we were going to get the hard work out of the way, and we saw the opportunity rather than dragging it out. We did that, and of course, from the time you announce the deal in January of last year to the time that we closed the deal in April, as you could imagine, a lot of competitive noise in the market, a lot of questions from brokers about what's going to happen, and we couldn't say much.

As we've gotten our story out there and gained momentum, we've continued to build momentum each of the quarters, and as we said, we've gotten ourselves back to where we were pre both in terms of bookings volume, it was double digits again year-over-year, and broker engagement. I would say it's getting back to kind of where we were, except for now we have the cross-sell opportunity.

Where I would say expense synergies are pretty much behind us at this point in time, we've taken those actions, we've exceeded the expectations that we laid out as part of the deal model. Now you're in what I call normal DNA best operators, continuing to improve the model of both companies and look for opportunities.

Where the opportunity is now and we continue to build momentum on is around the cross-sell inside the client base: 401(k), ASO, PEO, all of our other products and services. You'll be seeing us putting our Perks product into the Paycor ecosystem as well.

That's where we see the opportunity as we roll into fiscal year '27.

Great. Thank you so much.

Hey, I wonder, can you just remind us what the initial Paycor revenue and expense synergies were and where we are today on those? Because it seems like you've been doing a nice job on the integration, but just remind us what, again, the revenue and expense synergies were, because I guess we're bumping up on a year.

I think that would help.

Yeah. Kevin, if you go back to, I think, when we originally announced the deal, I'm now kind of losing track of the quarters, but at one point in time, I think the expense synergies were in the $80 million to $90 million range.

I think the last update that we gave that we expected those to be in the $100 million range. As John said, now we're kind of moving into BAU.

We'll continue to look for opportunities, and we haven't stopped even though we kind of exceeded our target. I think we have ideas certainly in areas around procurement and things like that.

I think there's additional opportunities. That was kind of the last update on the expense synergies.

Then I think the update we gave on revenue synergies was a current-year update. We expected it to contribute 30 to 50 basis points of growth this year.

I would say we're probably on the high end of that, and as John said, we're building momentum. Really, listen, I think the expense synergies are not why we did the deal.

I think they probably justified the purchase price, but really the value creation opportunity longer term with this deal is the cross-sell. We know we're extremely effective and have driven a lot of growth in our model selling and expanding the share of wallet within our existing client base.

When we look at where that growth has come from, our higher-value solutions, ASO, PEO, retirement solutions, those are solutions that John mentioned play well more up-market, and so listen, I think we're excited about the opportunity. Paycor average client size is quite a bit larger than ours, and those clients are more apt to have some of the needs that those solutions meet.

We're trying to be intentional and cautious and thoughtful in going after the opportunity. We know that we're extremely effective at doing it, might not always be the best client experience, and so we're trying to go after it the right way, and we're building a lot of momentum there.

As we move forward, we expect to continue to be able to capitalize on that opportunity.

Helpful. Then just a real quick follow-up.

John, you had some great commentary on the AI opportunity. As you think about AI across a 100-person client as opposed to an eight, is the go-to-market strategy on that different in terms of the consumption patterns, because obviously, you serve a terrific market from kind of micro to medium.

Just any thoughts on the shift in the go-to-market through an AI lens?

I think, Kevin, I'll take a shot at it. As I said, for the vast majority of our clients, we are their HR department.

You mentioned an eight-man company, they don't have an HR director, right? Probably don't even have a payroll person.

I think the thing that you find with our ASO and our PEO business is that a lot of the clients are foregoing building that capability, right? What they're saying is, why would I build a department when I can leverage Paychex at scale, their technology?

Now you get their datasets and our insights and our HR expertise and depth of knowledge. Oh, by the way, we have actually employment lawyers on staff that support those people, you're getting a lot more capability.

People are avoiding building HR departments. I think the value proposition there is, I'm going to leverage something at scale, and AI, if you're a scaled player, really makes a big difference is what I'll tell you, because I have a lot more insights about what restaurants are paying in Rochester, New York, or San Francisco.

I've got that data. I can bring that together now, present it in a way to give you advice.

If you had your own HR director, you're not going to get that. Those are things we can do.

When you get into 100-plus, and I would actually say even larger than that, what's been a pleasant surprise to us as we've had more conversations with the Paycor client base is how much they're looking for our support. Now you're talking a 250- or 500-person company that does have an HR department that's probably understaffed and under-equipped, and we can bring our expertise, our technology, our additional support staff, and begin to augment their HR organization and allow their people to spend more time on strategic HR activities.

I think when you start looking at companies trying to figure out how do I become more efficient, what I think you're going to find companies ask themselves is, yeah, do I apply AI into my HR department and try to make it a little more efficient, or should I really radically think about my HR department differently? Right?

Should I go and leverage someone who can provide both the tools and the people and have the breadth of the data we have to provide the insights? Is that a better alternative?

That's a traditional enterprise HR outsourcing value proposition, and I think AI allows us to do that at scale and do it at all sizes of the market. One of the things we've actually began to introduce at Paycor that they didn't have is a managed payroll and a managed benefit offering.

Now where typically the tech players say, "Here's the tool, knock yourself out," and we're getting clients that are asking us, "Would you mind doing it for us or doing it with us?" Now we're approaching that market with either you can buy our tech and get technical support, or you can come and we can do it for you.

I'm really excited about the opportunity here, and I think at scale, AI takes large datasets. We have large datasets, and I think we can add value to our clients in their HR departments regardless of whether they're eight people or 100 people.

Hi, good morning, and thanks for taking my questions. Good to hear it sounds like trends are getting pretty good.

You'd mentioned recently that maybe the initial land per client was a little bit smaller than historical, or fewer add-on modules at the point of sale. I'm curious if you've seen that trend change as well, if that was a one-time kind of occurrence what you saw last quarter, and if that's improved, and then I have one follow-up question.

Thank you.

Samad, I would say the market's been relatively stable in that regard. I think we probably had higher expectations going into the year about the number of modules that we would be able to add, and I would say that did not change much in Q3 selling season from what we saw before.

Understood. Then in the PEO business, I think that as we all try to figure out what's happening under the hood in terms of different verticals and what the employment outlook looks there, can you remind us what the vertical exposure inside of the PEO business is, broadly speaking, versus let's call it white collar, blue collar?

Then related, just as you think about that high single-digit PEO WSE growth, how much of that is driven by net new deals versus headcount growth within the install base? Thank you again.

On the industry thing, again, as big as we are, we're very broad in terms of where we are. Now, I would say that when you look at our aggregate business, because we did an analysis on this, and you look at the actual job codes of our employee bases across the business, and I would say there's not a major variance in the PEO business, we skew a little bit more towards the blue and gray than what you would see in the general workforce.

Again, some of that has to do with large enterprises are more white collar, if you get 5,000, 10,000, you have more white-collar type of jobs. A little bit more blue and gray across the business, and I think that applies to the PEO.

We had good net new client and worksite employee gain in the PEO.

I would say that's the entire driver. Employment has been relatively flat, and it is most years.

It's driven by the double-digit demand that we talked about, Samad, as well as the record retention. It really is net-net new is driving the growth in worksite employees.

Hi, thank you for taking my question this morning. I wanted to ask about something you mentioned, which was that Paycor bookings had reaccelerated to pre-acquisition levels.

How should we think about the bookings conversion to revenues for Paycor relative to legacy Paychex? Do the larger clients translate into sort of a slower conversion process or not so much?

It is a little longer than what we're accustomed to. There's a couple-quarter lag as near as I can tell.

Again, just what I see in the data is a couple quarters.

It obviously depends on the size of the client, but it is much longer than ours where you can sell them and implement them in the same day, same week. Yep.

I understand that would be the case for sort of a new client implementation, but does that also apply to cross-sell or new product attach, or is that something that you can kind of turn on more quickly?

That's far more quickly. Again, those cadences, if you recall, one of the things again that we did is to drive all the disruption up front.

We integrated all of our ancillary products within, I think it was probably the first quarter post the acquisition. Those things are very similar to legacy Paychex.

Great. Thank you very much.

I wanted to ask a quick macro question and I guess tie it to margin question is, you mentioned that you still see kind of a tight labor environment. Just wondering if you can provide any anecdotes or color on that comment.

Then as it relates to margins, I know you said that you expect there's some margin expansion to go. Just wondering how we should think about the Paycor integration and how that matures and getting past some of these acquisition-related costs because they still look elevated.

Just looking for a little color on the timing around those couple of things. Thanks a lot, guys.

I think on the macro side, I think what we've said is, and what we see is, that it's been relatively stable. It's really a low-fire and a low-hire type of environment right now.

We've not seen a significant change in this fiscal year in terms of the Small Business Index that we report. Again, I think we're in a dynamic environment right now where, again, what we hear from clients, particularly in the small end of the market, less than 50, is continued inability to find qualified people for the jobs that they have open, and we're doing a lot of things to try to support them there.

Then I think you've got a degree of potential hesitancy to add in this uncertain environment as you move up-market. Again, when we look across the business, it's been relatively flat employment levels.

Just on the integration-related stuff and question as it relates to margins, James, we're backing a lot of that stuff out, so that's really not included in the adjusted operating margins. I think if you were to look at our margins from a GAAP standpoint, they're still pretty high, probably in the 40% range.

I think John hit on it. We still think there's room as we move forward as we continue to embed AI in all of our processes across the company.

We feel like there's still plenty of room to expand margins. That's certainly part of our DNA, and we're always trying to make that trade-off of trying to find ways to be more productive, more efficient so we can expand margins, continue to deliver the strong earnings growth that our investors have come accustomed to, and at the same time making sure that we're investing back into the business, which is a priority for us to make sure we have a sustainable model as we move forward.

That's been our model. That's how we go about our business here, and I think today, just margins are high from a non-GAAP standpoint, but given some of the advancements in technology, we feel like we still have a runway to be able to shuffle all those different priorities and expand margins.

Thanks so much, John. Thanks, Bob.

Yep.

Hey, good morning. This is Kyle Aberasturi on for Dan Jester.

Thank you for squeezing me in here. Just a quick one from me.

I was wondering if you guys quantified how much impact the annual form filing revenue had on the business in the quarter? Thank you.

How much impact it had? It's always a large number in Q3.

I would say it's probably consistent with maybe where it was in prior years. Obviously, it's pretty high-margin revenue, so that's why you see the higher margins in Q3 relative to the rest of the year.

I'd say the one comment there related to the year-end filing, we definitely saw a little bit better price realization there. Discounting on that was better than what we had seen historically and certainly a little bit better than what we had assumed in our forecast.

That is a lever that sales reps can use, particularly as they're getting towards the end of the calendar year and selling new deals. That's kind of a discounting lever that they use, and we fly a little bit blind in finance because we don't really know how that's going to come through until it actually builds in January.

I would tell you that the discounting on it and the price realization was a bit better than what we assumed, but not a big growth driver year-over-year and similar performance probably than what we've seen in past years.

good morning. Thank you.

I think last quarter, your bias was the lower end of the revenue growth range, and I'm just wondering in reiterating the guide, are we still favoring the low end, or just given some of your commentary about the third quarter and going into the fourth quarter, are you feeling better about the business and feeling maybe we're better than the low end?

I think we would stay where we're at, David. That's why we reiterated as we mentioned.

Listen, I think we were a little bit conservative than what we guided towards in Q3. There were some puts and takes.

Obviously, we feel good about the business. We felt good about the business last quarter as well.

It's nice getting through Q3 and throwing up the quarter that we had. John mentioned a lot of positive momentum.

I'd have to say it's probably one of the stronger selling seasons that I've seen in a while, and we have a lot of momentum in a number of businesses, we feel good. Obviously, that translates into the P&L further down the road, particularly when you're talking about the enterprise space.

I'd say largely the back half, as I mentioned, is in line with our expectations, and that's why we're kind of leaving it where we had said it was going to be last quarter.

Got it. Sorry to kind of stick on the financials here, but just you did make a general comment about a certain level of comfort with where consensus was for next year.

I know you don't want to make any specific comments about next year, but is there anything now that you're a combined companies that how we should think about pays or pricing in Management Solutions going into next year, particularly given now that we've got Paycor in the base? I know it sounds like pays look like they're pretty stable, but thought I should just ask the question.

Anything you want to call out there in either pays or pricing?

No, David, I don't think there's any changes that we're making in any of our assumptions. I think, as we had clients of all sizes before we had Paycor.

We've added more up-market, but I think relative to our assumptions and what we're expecting, we're expecting very similar macro environment that we're seeing right now in a very uncertain time. That's the other thing that I'm sure Bob and I are going to be having a lot of conversations about, and by the time we consult with the board in a few months, and we come back to you, hopefully we have even more certainty about the external environment and what the risks are going into '27.

We're just trying to be prudent here. As you can imagine, this is a very unique time on a macro basis, and every day something could change that could impact where we are.

Right now, we feel in good shape. What we're seeing is stable macro environment, no signs of recession in any of our data or indicators, nothing that would indicate that we would change what we're thinking in terms of pays on any of our segments at this point in time.

Hey, thanks for taking my question. Quick one, just intersecting company in the mid-market through Paycor, you talk about expanding headcount to capture opportunity.

Just what are you seeing out there that's given you conviction?

I think the key thing is going into that, we know who the clients are and prospects are, and we have territories and we have open territories that we want to fill, and so we're continuing to expand that. I think before we bought Paycor, they were expanding headcount because they saw more opportunity, and we believe now with our comprehensive offerings that we have, the opportunity has expanded.

That's what gives us confidence to be able to expand the headcount, go after and capture the up-market, not only for HCM, but as I said, really bringing our entire HR advisory value proposition to the enterprise market.

Great. Thanks for taking my question.

Thanks for taking my question. I was wondering if you could provide some color on the year-on-year growth in Paycor in the quarter, and if you could quantify the contribution from form filings for Paycor in the quarter?

Thanks.

Ashish. I think as we've talked about in the past, the lines are somewhat blurred and have become increasingly blurred between what's Paycor and what's Paychex based on our early-on decision to integrate those two businesses.

I think if we look at it, our best estimate is if you were to look at the organic growth of the Paycor business, it was consistent in Q3 with what we saw in the first half of the year, which is in that upper single-digit range. I would tell you what's less blurred, and this is how we'll talk about the business as we move forward, is when we look at our enterprise business.

When we look at our client base above 100, irrespective of which sales organization sold it, which platform that it was on, that business has been growing, I would tell you, in the first half of the year it was growing upper single digits, and in Q3 it grew around 10%. That's how we're managing the business.

That's how John and I are thinking about it. That's how we're going to market.

As we move forward after we anniversary the acquisition and we provide color on the different areas of the business and how they're performing, that's how we're going to be looking at it. Again, I think that's similar and maybe not too different than what the other assets in that space are growing at, and our expectation would be that we would prospectively be growing at or above the other assets in that segment of the market.

That's currently where that enterprise space performed in Q3.

That's very helpful color. I was just wondering if you had some initial thoughts on pricing for next year and how does that trend compare to your historical range?

Also maybe a quick one on discounting. You made some comment around discounting was much lower, but I think that was specifically for forms filing.

I was wondering if you could comment on discounting for ASO in general. Thanks.

I'm going to say this: we're going into our budget meeting. This is where we discuss competitively how we want to position ourselves going into the next market.

We have a tradition of being able to drive value to our clients and get price accordingly, I'm not going to make any comments on how we're going to set pricing going into next year at this time. I don't want to give anybody a heads up.

I think our model and our long-term model is still in existence and viable, but we're not going to talk about the exact ranges we're looking at.

Hey, guys. Thanks for squeezing me in.

I'll limit it to one. Just going back to the PEO, it sounded like your commentary on enrollment sounded pretty positive, and I think you guys made some changes to benefits offerings and everything.

I also wonder, is there any element of you think that employees are maybe just sort of adjusting to this higher healthcare premium inflation environment and that could also be kind of helping to drive some of this enrollment growth that we've seen as well? Thanks.

Scott, I think everyone's adjusting. I think we adjusted our plan designs.

I think employees are adjusting in terms of what they're going to do, and employers are adjusting how they're going. I mentioned the use of AI.

I will say this: in tests where AI was used and where it wasn't, the choices that employees made, I think, improved their outcomes and improved our outcomes. What do I mean by that?

As you can immediately go to the cheapest plan, but given the circumstances or what you spent last year or changes that may have happened in your life relative to dependents, that may not be the most economic plan for you to participate in. These AI tools, the ability to model that for you and for you to maybe make the middle plan choice versus the lower-end plan choice, as I said, a better outcome for the participant, and of course, that impacts benefit for us as well because it's a higher-priced plan.

Great. Thanks, guys.

Thanks, Scott.

Good morning, John and Bob. John, you talked about Paycor revenue synergies as we're going to FY '27 and the opportunity to really take advantage of that.

I'm wondering how the sales force alignment is going, because I'm guessing that's part of the revenue synergies that you'd be able to capture.

On the alignment question, just so everyone's kind of clear-hearted, and I think this is the challenge and hopefully don't talk about Paycor anymore going forward, because Paycor for us is a brand that we're using to go and target the enterprise market as we're defining 100-plus. We've taken all the assets of the company regardless of where they were, and we've placed them in that business unit for that unit to focus on that particular market.

We're doing marketing there specifically for that target segment. Now we're spending marketing money in that segment.

We're putting sales reps into that segment to go after that segment, and we're going to capture as much of the market as we can at 100-plus. Now, once let's say a lead comes in digitally from marketing spend at Paycor, and we look at that lead and we go, "Hey, that looks like a great PEO opportunity," we're going to move that over to the PEO, right?

Now all of a sudden, you've got an expense that's on the Paycor side of the equation. Same thing is happening with our reps as well.

If this is your question, the segmentation of the sales force is clear. How we're going to market from a brand perspective is clear.

Then what we're doing is both in terms of using our AI and also our incentives for all of our sales reps is making sure we have every sales rep in the market looking and representing the entire capabilities of the company. That goes back to every rep is representing the comprehensive capabilities of the company, whether that's technology, whether that's the platform, whether that's do-it-yourself, do-it-for-you, or do-it-with-you.

We're offering every rep in every market the capability to do that, if that makes sense.

Yeah. Then just a follow-up question, Bob, and this might be crazy considering it's Paychex, but I thought I'd ask anyways: any thought about potentially using a little bit of leverage to buy back stock considering where the stock price is?

Kartik, listen, I think you saw we just recently announced a new share buyback authorization significantly larger than what we've had in the past. There's obviously, at least in my opinion, a disconnect between the underlying fundamentals of the business and in the valuation, and I was always taught to buy low and sell high, and so you've seen us be a little bit more opportunistic there.

I would tell you I don't think we've necessarily changed our overall philosophy around share buybacks, but we know we're going to have to buy shares back in the future to offset dilution, and we've done more of that this year than what we normally would have, as you guys can see in some of the disclosures. I don't ever want to say never.

Our leverage is pretty low. That's obviously a board-level decision, and as you can imagine, I'm assuming a lot of CEOs and CFOs in this market are having these conversations with their board on a regular basis, and John and I are certainly doing that.

We have lots of priorities from a capital allocation standpoint, certainly want to continue to invest in the business, but we'll continue to have those conversations, I don't want to say never, but something that we'll continue to evaluate.

Thanks, guys. Good morning.

I wanted to ask about Management Solutions specifically. I think the organic growth was 4% in the quarter.

I think that's the same as we saw last quarter. Do we expect that to accelerate in Q4, and if so, is that because you'll start to lap Paycor during the quarter, or would there be other accelerants we should be considering?

Thanks.

Hey, Jason. Yes, I would say, I think it was 4% in Q2 and 4% in Q3.

I would tell you one was a round-up and one was probably a round-down, and so you're also seeing sequential improvement in the organic growth of Management Solutions as well. Part of it is when you get to Q4, we would expect that to continue and maybe accelerate a little bit to the point that you're making: you're anniversarying the acquisition, now we have a scaled business that's growing faster than the overall growth of the business, so that would be accretive to the organic growth.

Then we're continuing to build momentum on the synergy opportunity, and I think that showed up in the Q3 selling results, and that'll eventually make its way into the P&L, and so you should see improvement in Management Solutions organic growth as we move into Q4 as well.

Okay. Understood.

Then just a clarification: I know we're not changing EPS guidance, but we did up the float income guide a little bit, which I would have thought would have lifted the EPS, I don't know, maybe a percent or so. There's only a quarter left in the year.

Just curious, is it just some conservatism there leaving the EPS guide as is, or are you going to reinvest some of that upside float income?

It's probably a combination of both. I think we're certainly going to look for opportunities as we move through the balance of this year to invest.

We want to get out of the gate strong when we get into next fiscal year, it's always balancing those trade-offs, Jason. John and I will manage through that as we go through the quarter and see where the opportunities are, but it's really, combination of maybe a little conservatism and where we may potentially want to take advantage and make some investments as we end the year.

The great position we find ourselves in is we have plenty of opportunities for investment coming out of the third quarter that have the opportunity both accelerate growth and accelerate margin expansion. We've got a lot of decisions to make over the next couple weeks as we go through our planning process, and anything that we're thinking is a good investment in the first quarter in '27, I don't think that we want to wait to make that investment.

We're certainly trying to contemplate that as we go into our planning session next week.

Thank you, everyone. Just to highlight, we delivered a strong double-digit revenue and earnings growth, continuing just really to reflect, I think, very disciplined execution and focus of the teams.

I do want to call out, we're approaching the one-year anniversary mark of the acquisition of Paycor, and I want to call out the Paycor team in particular. The group's been through a lot.

If you think back a year ago this day and what we were starting to prepare for and take the organization through, and I think the way that we've responded and the way we've continued to come together and build momentum as this fiscal year has come together has been just really impressive. I said it a year ago, we will be better together, and we are better together.

I point to you the example of what we did in the PEO industry and how we focused on that strategically many years ago. I think that's a good model for us to replicate as we go into fiscal year '27 and beyond in the enterprise space.

I think Paychex has never been better positioned than it is today. I think we've differentiated ourselves in the marketplace repeatedly.

I think in this new AI era, our scale, our breadth, our capabilities from an expertise perspective, and the fact that we're dealing in mission-critical type of work where errors are costly, I think that you're going to continue to find more and more clients of all sizes turn to Paychex to be their HR department and to provide them leading-class technology and advisory solutions in the years ahead. I like where we're positioned, and I want to thank you for your interest in Paychex.