PAYCHEX INC

Previous 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 for businesses and their employees across the United States (“U.S.”) and parts of Europe.

Current wording

We are an industry-leading human capital management (“HCM”) company providing comprehensive technology and advisory solutions in human resources (“HR”), payroll processing, employee benefits, and insurance across the U.S. and parts of Europe.

Previous wording

Our portfolio of technology, HR advisory, and employee benefits-related solutions is disaggregated into two categories, (1) Management Solutions and (2) professional employer organization (“PEO”) and Insurance Solutions, as discussed in Part I, Item 1 of this Form 10-K.

Current wording

Our offerings are 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 this Form 10-K.

Previous wording

We maintain industry-leading margins by managing our personnel costs and expenses while continuing to invest in our business, particularly in sales and marketing and leading-edge technology. We believe these investments are critical to our success. Looking to the future, we believe that investing in our solutions, people, and digital capabilities will position us to capitalize on opportunities for long-term growth.

Current wording

We maintain industry-leading margins by efficiently managing costs while strategically investing in our business, particularly in sales and marketing and leading-edge, AI-driven technology and advisory solutions, which we view as critical to our ongoing success. Looking ahead, we believe that investing in our solutions, people, and AI capabilities positions us to capitalize on long-term growth opportunities.

Previous 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. 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

By closely monitoring customer needs and challenges, we proactively assist our customers in navigating legislative changes and other employment complexities. Our unique blend of innovative technology and extensive HR expertise enables customers to more effectively hire, develop, and retain top talent in this tight labor market. Ongoing investments in our platforms have equipped us well to meet the current business demands and regulatory compliance, resulting in high levels of customer satisfaction and retention.

Previous wording

On April 14, 2025, we completed our acquisition of Paycor HCM, Inc. ("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 “Liquidity and Capital Resources” section of this Item 7 for additional information.

Current wording

On April 14, 2025, we completed the acquisition of Paycor, a leading provider of HCM, payroll, and talent software. This acquisition expands our upmarket position, suite of HCM technology and cross-sale potential. Refer to the "Results of Operations" and “Liquidity and Capital Resources” section of this Item 7 for additional information.

Previous wording

Adjusted operating income, adjusted net income, and adjusted diluted earnings per share are not U.S. generally accepted accounting principle (“GAAP”) measures. Adjusted net income and adjusted diluted earnings per share in all periods include an adjustment for net tax windfall benefits related to employee stock-based compensation payments. Adjusted operating income, adjusted net income and adjusted diluted earnings per share also include adjustments for acquisition-related costs in fiscal 2025 and cost optimization initiatives in fiscal 2024. Refer to the “Non-GAAP Financial Measures” section of this Item 7 for a discussion of non-GAAP measures and a reconciliation to the U.S. GAAP measures of operating income, net income and diluted earnings per share.

Current wording

Adjusted operating income, adjusted net income, and adjusted diluted earnings per share are not United States ("U.S.") generally accepted accounting principles (“GAAP”) measures. Adjusted net income and adjusted diluted earnings per share in both periods include an adjustment for net tax windfall benefits related to employee stock-based compensation payments. Adjusted operating income, adjusted net income and adjusted diluted earnings per share in both periods also include adjustments for acquisition-related costs. Refer to the “Non-GAAP Financial Measures” section of this Item 7 for a discussion of non-GAAP measures and a reconciliation to the U.S. GAAP measures of operating income, net income and diluted earnings per share.

Previous wording

Dividends paid to stockholders represented approximately 87% of net income for fiscal 2025 compared to approximately 78% of net income for fiscal 2024.

Current wording

Dividends paid to stockholders represented approximately 90% of net income for fiscal 2026 compared to approximately 87% of net income for fiscal 2025.

Previous wording

Our payroll and PEO client base, including clients added through the acquisition of Paycor, was approximately 800,000 clients as of May 31, 2025 and approximately 745,000 clients as of May 31, 2024. Client retention remained high in the range of 82% to 83% of our beginning client base for both fiscal 2025 and fiscal 2024 and we have sustained high revenue retention.

Current wording

During fiscal 2026, we served approximately 840,000 total customers across the U.S. and parts of Europe, of which approximately 800,000 are payroll clients. During fiscal 2025, we served approximately 800,000 payroll clients. Payroll client retention was in the range of 82% to 83% of our beginning client base for both fiscal 2026 and fiscal 2025 and we have sustained high revenue retention.

Previous wording

We continue to increase penetration of our integrated solutions beyond payroll processing, including our HR outsourcing (ASO and PEO) and retirement solutions. The following table illustrates selected HR solutions client metrics:

Current wording

We continue to increase penetration of our integrated solutions beyond payroll processing, including our HR outsourcing (ASO and PEO) and retirement solutions. The following table illustrates selected customer metrics:

Previous wording

In fiscal 2025, we continued to make investments in technology a priority as companies look to leverage technology solutions to maintain operations, stay connected to employees, and increase productivity. We implemented enhancements to our Paychex Flex, Paycor, and SurePayroll platforms designed to improve the client and client employee experiences from hiring and onboarding through employee retention. We also continue to focus on AI and related technology to leverage innovative technology and advanced analytics to gain deeper insights into prospects and clients regarding their behavior, preferences, and evolving needs. In fiscal 2025, we successfully implemented several additional innovative AI models that significantly improved results for Paychex and our clients.

Current wording

In fiscal 2026, we continued to make investments in technology a priority as companies look to leverage technology solutions to increase productivity, enhance decision-making, and deliver better outcomes. We implemented enhancements to our Paychex Flex, Paycor, and SurePayroll platforms designed to improve the customer and customer employee experiences from hiring and onboarding throughout employee retention. In fiscal 2026, we successfully implemented several innovative AI capabilities that enhanced value for Paychex and our customers, including WISE. WISE, our AI-powered intelligence engine extends our existing capabilities into agentic AI. Today, it powers approximately 600 AI features and agents across our solutions and operations. We also continue to focus on AI and related technology to leverage innovative technology and advanced analytics to gain deeper insights into prospects and customers regarding their behavior, preferences, and evolving needs.

Previous wording

We have further strengthened our position in the industry by serving as a source of education and information to clients, businesses of all sizes, and other interested parties. We provide free webinars, white papers, and other information on our website (www.paychex.com) to aid existing and prospective clients with the impact of regulatory changes. The Paychex Insurance

Current wording

We have further strengthened our position in the industry by serving as a source of education and information to customers, businesses of all sizes, and other interested parties. We provide free webinars, white papers, and other information on our website (www.paychex.com) to aid existing and prospective customers with the impact of regulatory changes. In addition, the Paychex Insurance Agency, Inc. website, www.paychex.com/group-health-insurance, helps small-business owners navigate the area of insurance coverage.

Previous wording

Total revenue increased to $5.6 billion for fiscal 2025, reflecting an increase of 6% compared to the prior year. The changes in revenue as compared to the prior year were primarily driven by the following factors:

Current wording

Total revenue increased to $6.5 billion for fiscal 2026, reflecting an increase of 17% compared to the prior year. Paycor, acquired in April 2025, contributed approximately 12% to total revenue growth for fiscal 2026. The changes in revenue as compared to the prior year were primarily driven by the following factors:

Previous wording

Continued growth in the number of HCM solution clients and HR outsourcing solutions worksite employees;

Current wording

Growth in the number of average clients served, primarily driven by the acquisition of Paycor, and HR outsourcing solutions worksite employees; and

Previous wording

PEO and Insurance Solutions revenue:$1.3 billion for fiscal 2025, reflecting an increase of 6%:

Current wording

PEO and Insurance Solutions revenue:$1.4 billion for fiscal 2026, reflecting an increase of 7%:

Previous wording

Growth in the number of average PEO worksite employees; and

Current wording

Continued growth in the number of average PEO worksite employees; and

Previous wording

The net unrealized loss on our investment portfolios was approximately $49.6 million as of July 8, 2025.

Current wording

The net unrealized loss on our investment portfolios was approximately $69.9 million as of July 15, 2026. Refer to Note G in the Notes to Consolidated Financial Statements contained in Item 8 and the "Market Risk Factors" section contained in Item 7A of this Form 10-K for more information regarding AFS securities held in an unrealized loss position.

Previous wording

The Federal Funds rate was in the range of 4.25% to 4.50% as of May 31, 2025 and in the range of 5.25% to 5.50% as of May 31, 2024.

Current wording

The Federal Funds rate was in the range of 3.50% to 3.75% as of May 31, 2026 and in the range of 4.25% to 4.50% as of May 31, 2025.

Previous wording

Total expenses: Total expenses, which reflects the total combined cost of service revenue and selling, general and administrative expenses, increased 8% to $3.4 billion compared to the prior year. The following table summarizes the components of total expenses:

Current wording

Total expenses: Total expenses, which reflects the total combined cost of service revenue and selling, general and administrative expenses, increased 19% to $4.0 billion compared to the prior year. The following table summarizes the components of total expenses:

Previous wording

Increase in PEO direct insurance costs related to growth in average worksite employees and wages, and PEO insurance revenues.

Current wording

Increase in PEO direct insurance costs related to growth in average worksite employees, and PEO insurance revenues.

Previous wording

Acquisition-related costs include 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 and transaction bonuses, and other acquisition-related costs, primarily reflecting professional service fees.

Current wording

Acquisition of Paycor in April 2025. Acquisition-related costs include 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 professional service fees.

Previous wording

Operating income: Fiscal 2025 operating income was $2.2 billion, an increase of 2% compared to fiscal 2024. Adjusted operating income(1)of $2.4 billion, which excludes the acquisition related costs and cost optimization initiatives noted above, reflects an increase of 7%. Operating income for fiscal 2025 was impacted by the acquisition of Paycor and the expiration of the ERTC program.

Current wording

Operating income: Fiscal 2026 operating income was $2.5 billion, an increase of 14% compared to fiscal 2025. Adjusted operating income(1)of $2.8 billion, which excludes the acquisition related costs noted above, increased 19%.

Previous wording

Interest expense: Interest expense increased $68.1 million to $105.4 million in fiscal 2025, primarily due to the issuance of incremental debt to finance the acquisition of Paycor and acquisition-related costs included in interest expense.

Current wording

Interest expense: Interest expense increased $164.1 million to $269.5 million in fiscal 2026, primarily due to the issuance of incremental debt in April 2025 to finance the acquisition of Paycor. The prior-year period also included acquisition-related financing costs.

Previous wording

Other income, net: Other income, net decreased 9% to $73.6 million in fiscal 2025, as a result of lower average interest rates earned on our corporate investments, partially offset by higher average investment balances.

Current wording

Other income, net: Other income, net decreased 5% to $69.9 million in fiscal 2026, primarily as a result of lower average interest rates earned on our corporate investments.

Previous wording

Income taxes: Our effective income tax rate was 23.8% for fiscal 2025 and 2024. The effective income tax rates in both periods were affected by the recognition of discrete tax impacts related to employee stock-based compensation payments. Refer to Note L of the Notes to Consolidated Financial Statements contained in Item 8 of this Form 10-K for additional disclosures on income taxes.

Current wording

Income taxes: Our effective income tax rate was 23.8% for both fiscal 2026 and fiscal 2025. The effective income tax rates in both periods were affected by the recognition of discrete tax impacts related to employee stock-based compensation payments. Refer to Note L of the Notes to Consolidated Financial Statements contained in Item 8 of this Form 10-K for additional disclosures on income taxes.

Previous wording

Net income and diluted earnings per share: Net income was $1.7 billion for fiscal 2025 and 2024. Diluted earnings per share was $4.58 per diluted share for fiscal 2025 and $4.67 per diluted share for fiscal 2024. Refer to Note C of the Notes to Consolidated Financial Statements contained in Item 8 of this Form 10-K for information on dilutive shares outstanding.

Current wording

Net income and diluted earnings per share: Net income was $1.8 billion for fiscal 2026 and $1.7 billion for fiscal 2025, reflecting an increase of 6%. Diluted earnings per share was $4.89 per diluted share for fiscal 2026 and $4.58 per diluted share for fiscal 2025, reflecting an increase of 7%. Refer to Note C of the Notes to Consolidated Financial Statements contained in Item 8 of this Form 10-K for information on dilutive shares outstanding.

Previous wording

Adjusted net income(1) was $1.8 billion and $1.7 billion for fiscal 2025 and 2024, respectively, reflecting an increase of 5%. Adjusted diluted earnings per share(1) was $4.98 per diluted share and $4.72 per diluted share for fiscal 2025 and fiscal 2024, respectively, reflecting an increase of 6%.

Current wording

Adjusted net income(1) was $2.0 billion and $1.8 billion for fiscal 2026 and fiscal 2025, respectively, reflecting an increase of 10%. Adjusted diluted earnings per share(1) was $5.51 per diluted share and $4.98 per diluted share for fiscal 2026 and fiscal 2025, respectively, reflecting an increase of 11%.

Previous wording

Adjusted operating income, adjusted operating margin, adjusted net income, and adjusted diluted earnings per share are not U.S. GAAP measures. Refer to the “Non-GAAP Financial Measures” section below for a discussion of these non-GAAP measures and a reconciliation to the most comparable GAAP measure of operating income, operating margin, net income and diluted earnings per share.

Current wording

Adjusted net income and adjusted diluted earnings per share are not U.S. GAAP measures. Refer to the “Non-GAAP Financial Measures” section below for a discussion of these non-GAAP measures and a reconciliation to the most comparable GAAP measure of net income and diluted earnings per share.

Previous wording

Acquisition-related costs included in selling, general and administrative expenses include $40.7 million in amortization of intangibles acquired in the acquisition of Paycor, $70.8 million in compensation costs related to the acquisition and integration of Paycor, including replacement awards, severance, and retention and transaction bonuses, and $50.8 million in other acquisition-related costs, primarily reflecting professional service fees. Acquisition-related costs included in interest expense includes $34.0 million reflecting the amortization of financing fees related to debt instruments associated with the financing of the Paycor acquisition and the excluded component of the initial fair value of the interest rate swaption contracts ("Swaption Contracts").

Current wording

Acquisition-related costs included in selling, general and administrative expenses include:

Previous wording

Our financial position as of May 31, 2025 remained strong with cash, restricted cash, and total corporate investments of $1.7 billion. Short-term borrowings of $18.6 million and long-term borrowings of $5.0 billion were outstanding as of May 31, 2025. Our unused capacity under our unsecured credit facilities was $2.0 billion as of May 31, 2025. Our primary source of cash is our ongoing operations, which was $1.9 billion for fiscal 2025. 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 May 31, 2025, along with projected operating cash flows and available short-term financing, will support our business operations, capital purchases, primarily investments in our technology solutions, share repurchases, dividend payments, acquisitions and debt service for the foreseeable future.

Current wording

Our financial position as of May 31, 2026 remained strong with cash, restricted cash, and total corporate investments of $1.2 billion. Long-term borrowings of $4.6 billion were outstanding as of May 31, 2026. Our unused capacity under our unsecured credit facilities was $2.0 billion as of May 31, 2026. Our primary source of cash is our ongoing operations, which was $2.6 billion for fiscal 2026. Our positive cash flows have allowed us to support our business, repurchase shares, and pay dividends. We currently anticipate that corporate cash, corporate restricted cash, and total corporate investments as of May 31, 2026, 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 debt service for the foreseeable future.

Previous wording

Short-term financing: We maintain committed and unsecured credit facilities and irrevocable letters of credit as part of our normal and recurring business operations. The purpose of these credit facilities is to meet short-term funding requirements, finance working capital needs, and for general corporate purposes. We typically borrow on an overnight or short-term basis on our credit facilities. Refer to Note M of the Notes to Consolidated Financial Statements contained in Item 8 of this Form 10-K for further discussion on our credit facilities.

Current wording

Short-term financing: We maintain committed and unsecured credit facilities and irrevocable letters of credit as part of our normal and recurring business operations. The purpose of these credit facilities is to meet short-term funding requirements, finance working capital needs, and for general corporate purposes. We typically borrow on an overnight or short-term basis under our credit facilities. Refer to Note M in the Notes to Consolidated Financial Statements contained in Item 8 of this Form 10-K for further discussion of our credit facilities.

Previous wording

Amounts outstanding under the PNC credit facility as of May 31, 2025 remain outstanding as of the date of this report.

Current wording

Effective January 23, 2026, we entered into amendments of our $750.0 million, five-year, unsecured, revolving credit facility (the "2017 JPM Credit Facility") and our $1.0 billion, five-year, unsecured, revolving credit facility (the "2019 JPM Credit Facility") with a syndicate of lenders for which JP Morgan Chase Bank, N.A. ("JPM") acts as administrative agent. The amendments to these credit facilities, among other things, increase the aggregate amount of principal available under the 2017 Credit Facility from $750 million to $1.0 billion, extend its maturity date from September 17, 2026 to January 23, 2031, and amend certain interest provisions and covenants under both credit facilities. In connection with these amendments, we terminated our three-year, $250 million, unsecured, revolving credit facility for which PNC Bank, N.A. ("PNC") acted as administrative agent (the "2020 PNC Credit Facility"). As of the date of its termination, there were no outstanding loans under the PNC Credit Facility. Refer to Note M in the Notes to Consolidated Financial Statements contained in Item 8 of this Form 10-K and our Current Report on Form 8-K filed on January 26, 2026, for additional information.

Previous wording

Letters of credit: As of May 31, 2025, we had irrevocable standby letters of credit available totaling $165.0 million, required to secure commitments for certain insurance policies. The letters of credit expire at various dates between June 1, 2025 and February 27, 2027. No amounts were outstanding on these letters of credit during fiscal 2025 or fiscal 2024, or as of May 31, 2025 and May 31, 2024. Subsequent to May 31, 2025, eight letters of credit expired and were renewed for one year terms.

Current wording

Letters of credit: As of May 31, 2026, we had irrevocable standby letters of credit available totaling $176.5 million, primarily to secure commitments for certain insurance policies. The letters of credit expire at various dates between June 1, 2026 and May 26, 2027. No amounts were outstanding on these letters of credit during fiscal 2026 or fiscal 2025, or as of May 31, 2026 and May 31, 2025. Subsequent to May 31, 2026, ten letters of credit expired and were renewed for one year terms.

Previous wording

Long-term financing: We have borrowed $4.2 billion through the issuance of three fixed rate corporate bonds ("Corporate Bonds") and $0.8 billion through the issuance of long-term private placement debt (“Senior Notes”). Refer to Note N of the Notes to Consolidated Financial Statements contained in Item 8 of this Form 10-K for further discussion on our long-term financing.

Current wording

Long-term financing: We have borrowed $4.2 billion through the issuance of three fixed rate corporate bonds ("Corporate Bonds") and $0.4 billion through the issuance of long-term private placement debt (“Senior Notes”). The following is information on each of our long-term financing arrangements related to future cash commitments:

Previous wording

workers’ compensation estimated obligations for $236.8 million; and

Current wording

workers’ compensation estimated obligations for $237.7 million; and

Previous wording

long-term Corporate Bonds and Senior Notes for $5.0 billion, plus interest payments of $1.7 billion.

Current wording

long-term Corporate Bonds and Senior Notes for $4.6 billion, plus interest payments of $1.4 billion.

Previous wording

The liability for uncertain tax positions, including interest and net of federal benefits, was approximately $108.6 million as of May 31, 2025. Refer to Note L of the Notes to Consolidated Financial Statements contained in Item 8 of this Form 10-K for more information on income taxes. We are not able to reasonably estimate the timing of future cash flows related to this liability.

Current wording

The liability for uncertain tax positions, including interest and net of federal benefits, was approximately $120.6 million as of May 31, 2026. Refer to Note L of the Notes to Consolidated Financial Statements contained in Item 8 of this Form 10-K for more information on income taxes. We are not able to reasonably estimate the timing of future cash flows related to this liability.

Previous wording

We are a limited partner in five limited partnership arrangements to contribute a maximum of $37.0 million to venture capital funds. As of May 31, 2025, we have contributed $29.0 million of the total funding commitment. The timing of future contributions to be made to these venture capital funds cannot be specifically or reasonably determined. Our investments in these venture capital funds are not considered part of our ongoing operations, are accounted for under the equity method, and represented less than one percent of our total assets as of May 31, 2025.

Current wording

We are a limited partner in five limited partnership arrangements to contribute a maximum of $37.5 million to venture capital funds. As of May 31, 2026, we have contributed $33.6 million of the total funding commitment. The timing of future contributions to be made to these venture capital funds cannot be specifically or reasonably determined. Our investments in these venture capital funds are not considered part of our ongoing operations, are accounted for under the equity method, and represented less than one percent of our total assets as of May 31, 2026.

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 commitment. 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.

Current wording

In the normal course of business, we make representations and warranties that guarantee the performance of services under service arrangements with customers. Historically, there have been no material losses related to such commitment. 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, 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 May 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.

Current wording

We currently self-insure the deductible portion of various insured exposures under certain corporate employee and PEO employee health and medical benefit plans. Historically, the amounts accrued for these plans have not been material and were not material as of May 31, 2026. We also self-insure the deductible portion of certain PEO workers' compensation benefit plans. Refer to Note A in the Notes to Consolidated Financial Statements contained in Item 8 of this Form 10-K for additional information regarding our estimated loss exposure under these PEO workers' compensation benefit plans.

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, servicing our long term debt, 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.