PAYCHEX INC
For the period ended Aug 31, 2025. Filed Sep 30, 2025.
View on SEC.govAbout this filing
A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Aug 31, 2025 · Filed Sep 30, 2025
PAYX$117.06-2.0%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2025-02-28; filed 2025-03-26.
0000950170-25-045216
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2025-08-31; filed 2025-09-30.
0001193125-25-224997
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 163 previous paragraphs and 166 current paragraphs.
83 unchanged; 56 reworded; 25 added; 22 removed; 2 previous and 2 current paragraphs rearranged.
Tables are not compared: 11 previous and 12 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (25)
Current report
changes in our credit ratings;
Current report
First Quarter Business Highlights
Current report
n/m — not meaningful
Current report
Management Solutions revenue: $1.2 billion for the first quarter, reflecting an increase of 21%. Paycor, acquired in April 2025, contributed approximately 17% to Management Solutions revenue growth year-over-year:
Current report
PEO and Insurance Solutions revenue: $329.1 million for the first quarter, reflecting an increase of 3%:
Current report
Interest on funds held for clients: $47.6 million for the first quarter, reflecting an increase of 27%, due to higher average investment balances, resulting from the acquisition of Paycor.
Current report
n/m — not meaningful
Current report
Compensation-related expenses:$530.0 million for the first quarter, reflecting an increase of 17%, primarily due to an increase in headcount, driven by the acquisition of Paycor.
Current report
Depreciation and amortization: $48.2 million for the first quarter, reflecting an increase of 23%, primarily due to higher property and equipment balances compared to the prior year period, including an increase in the development and enhancement of our client-facing internal-use software.
Current report
Other expenses:$196.5 million for the first quarter, reflecting an increase of 30%, primarily due to higher technology, selling, and marketing investments driven by the acquisition of Paycor and our continued strategic initiatives. The increase also reflects general cost increases to support business growth.
Current report
Acquisition-related costs:$84.8 million for the first quarter, reflecting the amortization of intangibles acquired in the acquisition of Paycor, compensation costs related to the acquisition and integration of Paycor, including replacement awards, severance, and retention bonuses, and other acquisition-related costs, primarily reflecting third-party professional service fees.
Current report
Operating income: Operating income decreased 1% to $541.9 million for the first quarter. Adjusted operating income(1), which excludes $84.1 million of Paycor acquisition-related costs included in selling, general and administrative expenses, grew 15% to $626.7 million for the first quarter.
Current report
Interest expense: Interest expense increased $58.6 million to $68.2 million for the first quarter, primarily due to the issuance of incremental debt to finance the acquisition of Paycor.
Current report
Other income, net: Other income, net was $23.8 million for the first quarter compared to $20.0 million for the prior year period. Other income, net primarily includes interest income on corporate investments.
Current report
Acquisition-related costs for the first quarter included in selling, general and administrative expenses include (i) $61.1 million in amortization of intangibles acquired in the acquisition of Paycor, (ii) $18.7 million in compensation costs related to the acquisition and integration of Paycor, including replacement awards, severance and retention bonuses, and (iii) $5.0 million in other acquisition-related costs, primarily reflecting professional service fees
Current report
Subsequent to August 31, 2025, we borrowed three times on an overnight basis, $185.2 million on a weighted-average basis under our PNC and JPM credit facilities.
Current report
Long-term financing: We have borrowed $0.8 billion through the issuance of long-term private placement debt (“Senior Notes”) and $4.2 billion through the issuance of three fixed rate corporate bonds ("Corporate Bonds"). The following is information on each of our long-term financing arrangements related to future cash commitments:
Current report
An increase in accrued interest related to our corporate bonds, for which the first interest installment payment is due in October; and
Current report
Net decrease in prepaid income taxes due to the timing of our first quarter tax installment, which historically is settled during our second fiscal quarter; offset by
Current report
A net decrease in accrued corporate compensation primarily due to the settlement of fiscal 2025 year-end bonuses.
Current report
Net increase in accrued income taxes due to the timing of our first quarter tax installment, which historically is settled during our second fiscal quarter; offset by
Current report
A net decrease in accrued corporate compensation primarily due to the settlement of year-end bonuses for our fiscal year ended May 31, 2024, offset by an increase in accrued payroll due to the timing of processing.
Current report
Net purchases of AFS securities related to investments in VRDNs at quarter-end and investment in our long-term portfolio;
Current report
stock-based compensation costs;
Current report
business combinations; and
Removed paragraphs (22)
Previous report
Third Quarter and Year to Date Business Highlights
Previous report
Management Solutions revenue: $1.1 billion for the third quarter and $3.0 billion for the nine months, reflecting increases of 5% and 3%, respectively:
Previous report
Lower revenue from ancillary services, primarily due to the expiration of our ERTC program during the three-month period ended February 29, 2024.
Previous report
PEO and Insurance Solutions revenue: $365.4 million for the third quarter and $1.0 billion for the nine months, reflecting increases of 6% and 7%, respectively:
Previous report
o
Previous report
Interest on funds held for clients: $42.9 million for the third quarter reflecting a decrease of 2%, primarily due to lower average interest rates. $116.5 million for the nine months, reflecting an increase of 8%, primarily due to higher average interest rates and average investment balances.
Previous report
Total expenses increased 4% to $817.2 million for the third quarter and 3% to $2.4 billion for the nine months, compared to the prior year periods. Total expenses increased as a result of the following:
Previous report
Acquisition-related costs:$16.7 million in the third quarter and nine months, primarily reflecting third-party professional service fees related to the pending Paycor acquisition.
Previous report
Other expenses:$174.0 million for the third quarter and $477.1 million for the nine months, reflecting increases of 7% and 6% respectively, primarily related to continued investment in technology, general cost increases to support business growth, and the benefit from a sales tax audit recognized in the three-month period ended February 29, 2024. In addition, the increase for the nine months included continued investment in sales and marketing.
Previous report
Total expenses, excluding acquisition-related costs noted above, increased 1% to $800.5 million for the third quarter and 3% to $2.4 billion for the nine months, compared to the prior year periods.
Previous report
Operating income: Operating income increased 6% to $691.8 million for the third quarter and 5% to $1.8 billion for the nine months, as a result of revenue growth which outpaced expense increases as previously discussed. Adjusted operating income(1), which excludes the impact of the acquisition-related costs, increased 9% to $708.5 million for the third quarter and 6% to $1.8 billion for the nine months. Operating income for both periods was impacted by the expiration of the ERTC program.
Previous report
Other (expense)/income, net: Other (expense)/income, net decreased $15.4 million to expense of $6.0 million for the third quarter and decreased $23.9 million to income of $10.0 million for the nine months, primarily as a result of acquisition-related costs associated with the pending Paycor acquisition recognized in interest expense and lower average interest rates earned on our corporate investments.
Previous report
Acquisition-related costs recognized related to the pending Paycor acquisition, including (i) $16.7 million for the third quarter and nine months primarily reflecting third-party professional service fees included in Selling, general, and administrative expenses and (ii) $13.2 million for the third quarter and nine months reflecting the amortization of financing fees related to debt instruments associated with the financing of the pending Paycor acquisition and the excluded component of the initial fair value of the interest rate swaption contracts ("Swaption Contracts") that are included in Other (expense)/income, net in the Company's Consolidated Statements of Income.
Previous report
Bridge Loan Commitment: In addition to our recurring credit facilities, on January 7, 2025, we and our subsidiary, Paychex of New York, LLC, entered into a Bridge Loan Commitment with JPM, pursuant to which JPM committed to provide a 364-day senior unsecured credit facility not to exceed $3.5 billion for the acquisition of Paycor, including related fees and expenses. We incurred $11.4 million in debt financing fees, including structuring and commitment fees, which were capitalized as Prepaid expenses and other current assets on the Company’s Consolidated Balance Sheets and are recognized as interest expense on a straight-line basis until the expected issuance date for permanent financing. There were no borrowings under the Bridge Loan Commitment as of February 28, 2025 or for the period from January 7, 2025 to February 28, 2025.
Previous report
We and certain of our subsidiaries will guarantee any borrowings that are made under the Bridge Loan Commitment. The Bridge Loan Commitment contains various financial and operational covenants that would have been applicable to any borrowings under the Bridge Loan Commitment and that are usual and customary for such arrangements. If such covenants were in effect, we would have been in compliance with all of these covenants as of February 28, 2025.
Previous report
Interest Rate Swaption Contracts: On January 31, 2025, the Company executed three Swaption Contracts with JPM. The Swaption Contracts qualify as cash flow hedges, have an aggregate notional amount of $3.0 billion, and are being utilized to manage exposure to fluctuations in benchmark interest rates associated with the anticipated issuance of long-term fixed rate debt to fund the planned acquisition of Paycor. At inception, we recorded Swaption Contract assets related to paid premiums of $19.2 million. The fair value of the Swaption Contract assets is classified as Prepaid expenses and other current assets on the Company’s Consolidated Balance Sheets. Refer to Note G of the Notes to Consolidated Financial Statements for additional information on the Swaption Contracts.
Previous report
On January 7, 2025, we entered into a definitive agreement to acquire Paycor in an all-cash transaction for $22.50 per eligible share, without interest (the "Acquisition"). The waiting period with respect to the consummation of the Acquisition under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, expired on February 21, 2025. The expiration of the waiting period satisfies one of the major conditions to the closing of the Acquisition, which remains subject to other customary closing conditions. We have the Bridge Loan Commitment in place and expect to secure long-term fixed financing prior to closing. The Acquisition is expected to close in April 2025, subject to customary closing conditions.
Previous report
Cash used for the acquisition of Alterna Capital Solutions, LLC and settlement of its outstanding debt at closing. Refer to Note D of the Notes to Consolidated Financial Statements for additional discussion of this transaction;
Previous report
Net sales from AFS securities primarily due to a shift from investing in VRDNs to reinvesting in cash and cash equivalents due to more favorable interest rates. We had no VRDN holdings as of February 29, 2024 compared to $344.1 million as of May 31, 2023.
Previous report
Increase in client fund obligations related to the timing of collections and remittances of client funds. The accrual balance as of May 31, 2023 was impacted by the deferral of semi-weekly payroll tax payments due to the Memorial Day holiday; offset by
Previous report
We periodically utilize derivative financial instruments to manage our interest rate risk. On January 31, 2025, we executed three Swaption Contracts with JPM. The Swaption Contracts qualify as cash flow hedges, have an aggregate notional amount of $3.0 billion, and are being utilized to manage exposure to fluctuations in benchmark interest rates associated with our anticipated issuance of long-term fixed rate debt to fund the planned acquisition of Paycor. The fair value of the Swaption Contracts was $3.4 million as of February 28, 2025.
Previous report
stock-based compensation costs; and
Reworded paragraphs (56)
Previous wording
Management’s Discussion and Analysis of Financial Condition and Results of Operations reviews the operating results of Paychex, Inc. and its wholly owned subsidiaries (“Paychex,” the “Company,” “we,” “our,” or “us”) for the three months ended February 28, 2025 (the “third quarter”), the nine months ended February 28, 2025 (the "nine months"), the respective prior year periods ended February 29, 2024 (the “prior year periods”), and our financial condition as of February 28, 2025. The focus of this review is on the underlying business reasons for material changes and trends affecting our revenue, expenses, net income, and financial condition. This review should be read in conjunction with the February 28, 2025 consolidated financial statements and the related Notes to Consolidated Financial Statements (Unaudited) contained in this Quarterly Report on Form 10-Q (“Form 10-Q”). This review should also be read in conjunction with our Annual Report on Form 10-K (“Form 10-K”) for the year ended May 31, 2024 (“fiscal 2024”). Forward-looking statements in this Form 10-Q are qualified by the cautionary statement included under the next sub-heading, “Cautionary Note Regarding Forward-Looking Statements.”
Current wording
Management’s Discussion and Analysis of Financial Condition and Results of Operations reviews the operating results of Paychex, Inc. and its wholly owned subsidiaries (“Paychex,” the “Company,” “we,” “our,” or “us”) for the three months ended August 31, 2025 (the “first quarter”), the respective prior year period ended August 31, 2024 (the “prior year period”), and our financial condition as of August 31, 2025. The focus of this review is on the underlying business reasons for material changes and trends affecting our revenue, expenses, net income, and financial condition. This review should be read in conjunction with the August 31, 2025 consolidated financial statements and the related Notes to Consolidated Financial Statements (Unaudited) contained in this Quarterly Report on Form 10-Q (“Form 10-Q”). This review should also be read in conjunction with our Annual Report on Form 10-K (“Form 10-K”) for the year ended May 31, 2025 (“fiscal 2025”). Forward-looking statements in this Form 10-Q are qualified by the cautionary statement included under the next sub-heading, “Cautionary Note Regarding Forward-Looking Statements.”
Previous wording
Certain written statements made in this Form 10-Q may contain, and members of management may from time to time make or discuss statements which constitute, “forward-looking statements” within the meaning of the safe harbor provisions of the United States (“U.S.”) Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by such words and phrases as “expect,” “outlook,” “will,” “guidance,” “projections,” “strategy,” “mission,” “anticipate,” “believe,” “can,” “could,” “design,” “look forward,” “may,” “possible,” “potential,” “should,” and other similar words or phrases. Forward-looking statements include, without limitation, all matters that are not historical facts. Examples of forward-looking statements include, among others, statements we make regarding operating performance, events, or developments that we expect or anticipate will occur in the future, including statements relating to our outlook, revenue growth, earnings, earnings-per-share growth, and similar projections, and the pending acquisition of Paycor HCM, Inc. ("Paycor").
Current wording
Certain written and oral statements made by management of Paychex may constitute “forward-looking statements” within the meaning of the safe harbor provisions of the United States (“U.S.”) Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by such words and phrases as “expect,” “outlook,” “will,” “guidance,” “projections,” “strategy,” “mission,” “anticipate,” “believe,” “can,” “could,” “design,” “look forward,” “may,” “possible,” “potential,” “should,” and other similar words or phrases. Forward-looking statements include, without limitation, all matters that are not historical facts. Examples of forward-looking statements include, among others, statements we make regarding the integration of Paycor HCM, Inc. ("Paycor"), operating performance, events, or developments that we expect or anticipate will occur in the future, including statements relating to our outlook, revenue growth, earnings, earnings-per-share growth, and similar projections.
Previous wording
risks related to acquisitions and the integration of the businesses we acquire, including risks related to the acquisition and integration of Paycor;
Current wording
risks related to acquisitions and the integration of the businesses we acquire, including risks related to the integration of Paycor;
Previous wording
our failure to comply with covenants in our debt agreements;
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our failure to comply with covenants in our corporate bonds and debt agreements;
Previous wording
Any of these factors, as well as other factors discussed in our Form 10-K for fiscal 2024 or in our other periodic filings with the Securities and Exchange Commission (“SEC”), could cause our actual results to differ materially from our anticipated results. The information provided in this Form 10-Q is based upon the facts and circumstances known as of the date of this report, and any forward-looking statements made by us in this Form 10-Q speak only as of the date on which they are made. Except as required by law, we undertake no obligation to update these forward-looking statements after the date of filing this Form 10-Q with the SEC to reflect events or circumstances after such date, or to reflect the occurrence of unanticipated events.
Current wording
Any of these factors, as well as such other factors as discussed in our Form 10-K for fiscal 2025 and in our periodic filings with the Securities and Exchange Commission (the “SEC”), could cause our actual results to differ materially from our anticipated results. The information provided in this Form 10-Q is based upon the facts and circumstances known as of the date of this report, and any forward-looking statements made by us in this Form 10-Q speak only as of the date on which they are made. Except as required by law, we undertake no obligation to update these forward-looking statements after the date of filing this Form 10-Q with the SEC to reflect events or circumstances after such date, or to reflect the occurrence of unanticipated events.
Previous wording
Our investor presentation regarding the financial results for the third quarter is available and accessible on our Paychex Investor Relations portal athttps://investor.paychex.com. Information available on our website is not a part of, and is not incorporated into, this Form 10-Q. We intend to make future investor presentations available exclusively on our Paychex Investor Relations portal.
Current wording
Our investor presentation regarding the financial results for the first quarter is available and accessible on our Paychex Investor Relations portal athttps://investor.paychex.com. Information available on our website is not a part of, and is not incorporated into, this Form 10-Q. We intend to make future investor presentations available exclusively on our Paychex Investor Relations portal.
Previous wording
We are an industry-leading human capital management (“HCM”) company delivering a full suite of technology and advisory services in human resources (“HR”), employee benefit solutions, insurance and payroll processing for small- to medium-sized businesses and their employees across the U.S. and parts of Europe.
Current wording
We are an industry-leading human capital management (“HCM”) company delivering a full suite of technology and advisory solutions in human resources (“HR”), employee benefits, insurance, and payroll across the U.S. and parts of Europe.
Previous wording
We offer a full range of integrated HCM solutions from hire to retire for businesses and their employees. Clients may choose from a breadth of solutions that cover the spectrum of the employee life cycle, but we also allow integrations with popular HR, accounting, point-of-sale, and productivity applications available on the market today.
Current wording
We offer a full range of integrated HCM solutions spanning the employee life cycle for businesses and their employees. Clients may choose from a breadth of solutions that also allow integration with some of the most popular HR, accounting, enterprise resource planning, and point-of-sale applications on the market today.
Previous wording
We support our small-business clients by utilizing our proprietary, robust, software as a service (“SaaS”) Paychex Flex® platform and the Company’s SurePayroll® SaaS-based solutions. Our medium-sized clients generally have more complex payroll and employee benefit needs, though with the environment of increasing regulations, we believe the need for HR outsourcing services has been moving down-market. Any of our clients on Paychex Flex can opt for the integrated suite of HCM solutions, which allows clients to choose the service and software solutions that will meet the needs of their businesses.
Current wording
We support our clients through our proprietary SaaS-based solutions, SurePayroll®, Paychex Flex®, and Paycor®. Our larger clients generally have more complex payroll and employee benefit needs, though with the environment of increasing regulations, we believe the need for HR outsourcing solutions has been expanding. Any of our clients on Paychex Flex or Paycor can opt for the integrated suite of HCM solutions, which enables clients to choose the service and software solutions that best meet the needs of their business.
Previous wording
Our portfolio of technology, HR advisory, and employee benefits-related solutions is disaggregated into two categories, (1) Management Solutions and (2) PEO and Insurance Solutions, as discussed under the heading “Description of Solutions” in Part I, Item 1 of our Form 10-K for fiscal 2024.
Current wording
Our portfolio of technology, HR advisory, and employee benefits-related solutions is disaggregated into two categories, (1) Management Solutions and (2) PEO and Insurance Solutions, as discussed under the heading “Our Solutions” in Part I, Item 1 of our Form 10-K for fiscal 2025.
Previous wording
Our mission is to be the leading provider of HR, employee benefits, insurance, and payroll solutions by being an essential partner to small- and medium-sized businesses across the U.S. and parts of Europe. Our strategy focuses on providing industry-leading, integrated technology; delivering superior customer experiences; expanding our leadership in HR; growing our client bases; and engaging in strategic acquisitions. We believe that successfully executing this strategy will lead to strong, long-term financial performance.
Current wording
Our mission is to help businesses succeed as the digitally driven HR leader. Our strategy focuses on growing our client base; increasing product penetration; driving technology innovation; and pursuing strategic acquisitions. We believe that successfully executing this strategy will lead to strong, long-term financial performance.
Previous wording
We closely monitor the evolving challenges and needs of small- and medium-sized businesses, and proactively aid our clients in navigating macroeconomic challenges, legislative changes, and other complexities they may face. Through our unique blend of innovative technology solutions, backed by our extensive compliance and HR expertise, we help clients more effectively hire, develop, and retain top talent in this challenging workforce environment. Our ongoing investments in our platforms have prepared us well for the demands of the current business and regulatory environments, allowing us to adapt while maintaining strong solutions and support delivery, resulting in high levels of client satisfaction and retention.
Current wording
We closely monitor the evolving challenges and needs of our clients, and proactively aid our clients in navigating macroeconomic challenges, legislative changes, and other complexities they may face. Through our unique blend of innovative technology solutions, backed by our extensive compliance and HR expertise, we help clients more effectively hire, develop, and retain top talent in this challenging workforce environment. Ongoing investments in our platforms have prepared us well for the demands of the current business and regulatory environments, enabling us to adapt while maintaining strong solutions and support delivery, resulting in high levels of client satisfaction and retention.
Previous wording
On January 7, 2025, we entered into an agreement to acquire Paycor, a leading provider of HCM, payroll and talent software, in an all-cash transaction for $22.50 per eligible share, representing an enterprise value of approximately $4.1 billion. This acquisition will extend our upmarket position and expand our suite of HR technology and advisory solutions. This acquisition is expected to close in April 2025, subject to customary closing conditions. Refer to the “Liquidity and Capital Resources” section of this Item 2 for additional information.
Current wording
On April 14, 2025, we completed our acquisition of Paycor, a leading provider of HCM, payroll and talent software. This acquisition extends our upmarket position and expands our suite of HR technology and advisory solutions. Refer to the "Results of Operations" and “Liquidity and Capital Resources” section of this Item 2 for additional information.
Previous wording
Highlights compared to the prior year periods are as follows:
Current wording
Highlights compared to the prior year period are as follows:
Previous wording
For further analysis of our results of operations for the third quarter and nine months, the prior year periods, and our financial position as of February 28, 2025, refer to the tables and analysis in the “Results of Operations” and “Liquidity and Capital Resources” sections of this Item 2.
Current wording
For further analysis of our results of operations for the first quarter and prior year period, and our financial position as of August 31, 2025, refer to the tables and analysis in the “Results of Operations” and “Liquidity and Capital Resources” sections of this Item 2.
Previous wording
Total revenue increased to $1.5 billion for the third quarter and $4.1 billion for the nine months, reflecting increases of 5% and 4% respectively, compared to the prior year periods. Excluding the impact of the expiration of the Employee Retention Tax Credit ("ERTC") program, revenue growth for both the third quarter and the nine months was 6%. The changes in revenue as compared to the prior year periods were primarily driven by the following factors:
Current wording
Total revenue increased to $1.5 billion for the first quarter, represented growth of 17% over the prior year period. The changes in revenue as compared to the prior year period were primarily driven by the following factors:
Previous wording
Continued growth in the number of clients served across our suite of HCM solutions and client worksite employees for HR solutions;
Current wording
Growth in the number of clients served, primarily driven by the acquisition of Paycor, and client worksite employees for HR Solutions; and
Previous wording
Higher revenue per client resulting from price realization and product penetration, including HR solutions and retirement; and
Current wording
Higher revenue per client driven by Paycor's upmarket client base, price realization, and product penetration, including HR solutions and retirement.
Previous wording
(1) The net unrealized loss on our investment portfolio was approximately $70.2 million as of March 24, 2025. Refer to Note F in the Notes to Consolidated Financial Statements and the "Market Risk Factors" caption contained in this Form 10-Q for more information regarding AFS securities held in an unrealized loss position.
Current wording
(1) The net unrealized loss on our investment portfolio was approximately $22.9 million as of September 26, 2025. Refer to Note F in the Notes to Consolidated Financial Statements and the "Market Risk Factors" caption contained in this Form 10-Q for more information regarding AFS securities held in an unrealized loss position.
Previous wording
(2) The Federal Funds rate was in the range of 4.25% to 4.50% as of February 28, 2025 and 5.25% to 5.50% as of May 31, 2024.
Current wording
(2) The Federal Funds rate was in the range of 4.25% to 4.50% as of August 31, 2025 and May 31, 2025. Effective September 18, 2025, the Federal Reserve decreased the Federal Funds rate to a range of 4.00% to 4.25%.
Previous wording
Total expenses: The following table summarizes the total combined cost of service revenue and selling, general and administrative expenses for the periods below:
Current wording
Total expenses: Total expenses, which reflects the total combined cost of service revenue and selling, general and administrative expenses, increased 29% to $998.1 million for the first quarter. The following table summarizes the components of total expenses:
Previous wording
PEO direct insurance costs: $127.7 million for the third quarter and $388.8 million for the nine months, reflecting increases of 7% and 14% respectively, related to growth in average worksite employees and PEO insurance revenues.
Current wording
PEO direct insurance costs: $138.6 million for the first quarter, reflecting an increase of 6%, related to growth in average worksite employees and PEO insurance revenues.
Previous wording
Operating margin (operating income as a percentage of total revenue) and adjusted operating margin(1)(operating income, as adjusted for acquisition-related costs, as a percentage of total revenue) were as follows:
Current wording
Operating margin (operating income as a percentage of total revenue) and adjusted operating margin(1)(adjusted operating income as a percentage of total revenue) were as follows:
Previous wording
Income taxes: Our effective income tax rate was 24.3% for the third quarter and 23.9% for the nine months, compared to 24.4% and 24.1%, for the prior year periods, respectively. All periods were impacted by the recognition of excess tax benefits related to employee stock-based compensation payments.
Current wording
Income taxes: Our effective income tax rate was 22.9% for the first quarter compared to 23.3%, for the prior year period. The effective income tax rates in both periods were affected by the recognition of discrete tax impacts related to employee stock-based compensation payments.
Previous wording
Non-GAAP Financial Measures: Adjusted operating income, adjusted operating margin, adjusted other income, net, adjusted net income, adjusted diluted earnings per share, earnings before interest, taxes, depreciation, and amortization (“EBITDA”), and adjusted EBITDA are summarized as follows:
Current wording
Non-GAAP Financial Measures: Adjusted operating income, adjusted operating margin, adjusted net income, adjusted diluted earnings per share, earnings before interest, taxes, depreciation, and amortization (“EBITDA”), and adjusted EBITDA are summarized as follows:
Previous wording
In addition to reporting operating income, operating margin, other (expense)/income, net, net income, and diluted earnings per share, which are U.S. GAAP measures, we present adjusted operating income, adjusted operating margin, adjusted other income, net, adjusted net income, adjusted diluted earnings per share, EBITDA, and adjusted EBITDA, which are non-GAAP measures. We believe these additional measures are indicators of our core business operations’ performance period over period. Adjusted operating income, adjusted operating margin, adjusted other income, net, adjusted net income, adjusted diluted earnings per share, EBITDA, and adjusted EBITDA are not calculated through the application of U.S. GAAP and are not required forms of disclosure by the SEC. As such, they should not be considered a substitute for the U.S. GAAP measures of operating income, operating margin, other (expense)/income, net, net income and diluted earnings per share, and, therefore, they should not be used in isolation, but in conjunction with the U.S. GAAP measures. The use of any non-GAAP measure may produce results that vary from the U.S. GAAP measure and may not be comparable to a similarly defined non-GAAP measure used by other companies.
Current wording
In addition to reporting operating income, operating margin, net income, and diluted earnings per share, which are U.S. GAAP measures, we present adjusted operating income, adjusted operating margin, adjusted net income, adjusted diluted earnings per share, EBITDA, and adjusted EBITDA, which are non-GAAP measures. We believe these additional measures are indicators of our core business operations’ performance period over period. Adjusted operating income, adjusted operating margin, adjusted net income, adjusted diluted earnings per share, EBITDA, and adjusted EBITDA are not calculated through the application of U.S. GAAP and are not required forms of disclosure by the SEC. As such, they should not be considered a substitute for the U.S. GAAP measures of operating income, operating margin, net income, and diluted earnings per share, and, therefore, they should not be used in isolation, but in conjunction with the U.S. GAAP measures. The use of any non-GAAP measure may produce results that vary from the U.S. GAAP measure and may not be comparable to a similarly defined non-GAAP measure used by other companies.
Previous wording
Our financial position as of February 28, 2025 remained strong with cash, restricted cash, and total corporate investments of $1.7 billion. Short-term borrowings of $17.6 million and long-term borrowings of $800.0 million were outstanding as of February 28, 2025. Our unused capacity under our unsecured credit facilities was approximately $2.0 billion as of February 28, 2025. We also maintain a bridge commitment letter (“Bridge Loan Commitment”) in connection with our acquisition of Paycor. Our primary source of cash is our ongoing operations, which was $1.6 billion for the nine months. Our positive cash flows have allowed us to support our business and pay dividends. We currently anticipate that corporate cash, corporate restricted cash, and total corporate investments as of February 28, 2025, along with projected operating cash flows and available short-term financing, will support our business operations, capital purchases, primarily investment in our technology solutions, share repurchases, dividend payments, and the servicing of long-term debt for the foreseeable future.
Current wording
Our financial position as of August 31, 2025 remained strong with cash, restricted cash, and total corporate investments of $1.7 billion. Short-term borrowings of $18.5 million and long-term borrowings of $5.0 billion were outstanding as of August 31, 2025. Our unused capacity under our unsecured credit facilities was approximately $2.0 billion as of August 31, 2025. Our primary source of cash is our ongoing operations, which was $718.4 million for the first quarter. Our positive cash flows have allowed us to support our business and pay dividends. We currently anticipate that corporate cash, corporate restricted cash, and total corporate investments as of August 31, 2025, along with projected operating cash flows and available short-term financing, will support our business operations, capital purchases, primarily investment in our technology solutions, share repurchases, dividend payments, acquisitions and debt service for the foreseeable future.
Previous wording
Details of borrowings under each credit facility during the third quarter were as follows:
Current wording
Details of borrowings under each credit facility during the first quarter were as follows:
Previous wording
Letters of credit: As of February 28, 2025, we had irrevocable standby letters of credit available totaling $168.7 million, primarily to secure commitments for certain insurance policies. The letters of credit expire at various dates between March 03, 2025 and February 28, 2026. No amounts were outstanding on these letters of credit during the third quarter or as of February 28, 2025.
Current wording
Letters of credit: As of August 31, 2025, we had irrevocable standby letters of credit available totaling $177.2 million, primarily to secure commitments for certain insurance policies. The letters of credit expire at various dates between September 01, 2025 and February 28, 2027. No amounts were outstanding on these letters of credit during the first quarter or as of August 31, 2025.
Previous wording
Long-term financing: We have borrowed $800.0 million through the issuance of long-term private placement debt. Refer to Note N of the Notes to Consolidated Financial Statements contained in Item 8 of our Form 10-K for fiscal 2024 for further discussion on our long-term financing.
Current wording
Refer to Note N of the Notes to Consolidated Financial Statements contained in Item 8 of our Form 10-K for fiscal 2025 for further discussion on our long-term financing.
Previous wording
Other commitments: We had outstanding commitments under existing workers’ compensation insurance agreements and legally binding contractual arrangements. We also entered into various purchase commitments with vendors in the ordinary course of business and had outstanding commitments to purchase approximately $6.1 million of capital assets as of February 28, 2025. In addition, we are involved in five limited partnership agreements to contribute a maximum of $37.0 million to venture capital funds. As of February 28, 2025, we have contributed approximately $28.1 million of the total funding commitment.
Current wording
Other commitments: We had outstanding commitments under existing workers’ compensation insurance agreements and legally binding contractual arrangements. We also entered into various purchase commitments with vendors in the ordinary course of business and had outstanding commitments to purchase approximately $9.2 million of capital assets as of August 31, 2025. In addition, we are involved in six limited partnership agreements to contribute a maximum of $37.5 million to venture capital funds. As of August 31, 2025, we have contributed approximately $31.4 million of the total funding commitment.
Previous wording
In the normal course of business, we make representations and warranties that guarantee the performance of services under service arrangements with clients. Historically, there have been no material losses related to such guarantees. We have also entered into indemnification agreements with our officers, directors, and fiduciaries of certain of our retirement plans, which require us to defend and, if necessary, indemnify these individuals for certain pending or future legal claims as they relate to their services provided to us.
Current wording
In the normal course of business, we make representations and warranties that guarantee the performance of services under service arrangements with clients. Historically, there have been no material losses related to such guarantees. We have also entered into indemnification agreements with our officers, directors, and non-officer fiduciaries of our pooled employer plan retirement offering, which require us to defend and, if necessary, indemnify these individuals for certain pending or future legal claims as they relate to their services provided to us.
Previous wording
We currently self-insure the deductible portion of various insured exposures under certain corporate and PEO employee health and medical benefit plans. Our estimated loss exposure under these insurance arrangements is recorded in other current liabilities on our Consolidated Balance Sheets. Historically, the amounts accrued have not been material and were not material as of February 28, 2025. We also maintain corporate insurance coverage in addition to our purchased primary insurance policies for gap coverage for employment practices liability, errors and omissions, warranty liability, theft and embezzlement, cyber threats, and acts of terrorism; and capacity for deductibles and self-insured retention through our captive insurance company.
Current wording
We currently self-insure the deductible portion of various insured exposures under certain corporate and PEO employee health, medical, and workers' compensation benefit plans. Our estimated loss exposure under these insurance arrangements is recorded in other current liabilities on our Consolidated Balance Sheets. Historically, the amounts accrued have not been material and were not material as of August 31, 2025. We also maintain corporate insurance coverage in addition to our purchased primary insurance policies for gap coverage for employment practices liability, errors and omissions, warranty liability, theft and embezzlement, cyber threats, and acts of terrorism; and capacity for deductibles and self-insured retention through our captive insurance company.
Previous wording
Primary sources of cash, restricted cash, and equivalents are through collections for services rendered to our customers and interest earned on funds held for clients and corporate investments. Primary uses of cash include employee compensation and contractual obligations related to business operations, cash dividends paid, share repurchases, purchases of property and equipment, and acquisitions.
Current wording
Primary sources of cash, restricted cash, and equivalents are through collections for services rendered to our customers and interest earned on funds held for clients and corporate investments. Primary uses of cash include employee compensation and contractual obligations related to business operations, cash dividends paid, share repurchases, purchases of property and equipment, long-term debt service, and acquisitions.
Previous wording
Our investment portfolio incorporates both corporate cash and funds held for clients. Interest rates, market conditions, and our volatile cash flows are among several factors influencing our investment strategy directing the mix between long-term and VRDN AFS securities compared to short-term restricted cash and cash equivalents held in the investment portfolio. An investment portfolio strategy that favors larger balances held in restricted cash and cash equivalents may impact our investing activities due to the offsetting activity in the purchases and sales or maturities of AFS investments.
Current wording
Our investment portfolio incorporates both corporate cash and funds held for clients. Interest rates, market conditions, and our variable cash flows are among several factors influencing our investment strategy directing the mix between long-term and VRDN AFS securities vs. short-term restricted cash and cash equivalents held in the portfolio. A portfolio strategy that favors larger balances held in restricted cash and cash equivalents may impact our investing activities due to the offsetting activity in the purchases and sales/maturities of AFS investments.
Previous wording
Summarized operating, investing, and financing cash flow information for the nine months and the prior period:
Current wording
Summarized operating, investing, and financing cash flow information for the first quarter and the prior period:
Previous wording
The changes in our cash flow for the nine months compared to the prior year period were primarily the result of the following key drivers:
Current wording
The changes in our cash flow for the first quarter compared to the prior year period were primarily the result of the following key drivers:
Previous wording
Net income attributable to the reasons discussed in the “Results of Operations” section of this Item 2; and
Current wording
Net income, adjusted for non-cash items including depreciation and amortization, provision on deferred taxes and stock-based compensation, attributable to the reasons discussed in the “Results of Operations” section of this Item 2;
Previous wording
A net increase in refunds owed to our PEO clients related to tax benefits allowed under the Coronavirus Aid, Relief, and Economic Security Act.
Current wording
Net increase in refunds owed to our clients related to tax benefits allowed under the Coronavirus Aid, Relief, and Economic Security Act;
Previous wording
Net income attributable to the reasons discussed in the “Results of Operations” section of this Item 2;
Current wording
Net income, adjusted for non-cash items including depreciation and amortization, benefit from deferred taxes and stock-based compensation, attributable to the reasons discussed in the “Results of Operations” section of this Item 2; and
Showing the first 40 of 56 pairs. Open the source sections for the rest.
Rearranged current paragraphs (2)
Current report — wording carried from elsewhere
The changes in total expenses as compared to the prior period were primarily driven by the following factors:
Current report — wording carried from elsewhere
Reserve and other government agencies related to the overall macroeconomic environment. We will continue to monitor the market and economic conditions.
Rearranged previous paragraphs (2)
Previous report — wording carried elsewhere
Net changes in PEO assets and liabilities as a result of the timing of cash collected and the settlement of payroll taxes; offset by
Previous report — wording carried elsewhere
A net decrease in refunds owed to our PEO clients related to tax benefits allowed under the Coronavirus Aid, Relief, and Economic Security Act.