Excluding the impact of the non-recurring benefits from the ERTC program and having one less processing day in the quarter, revenue growth was 7%.
— John Gibson
03Detailed Report
PAYX
Company PAYX
Period
Q1 2025
CurrencyUSD
Report TypeQuarterly Earnings
GeneratedJun 13, 2026
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Executive Summary
Paychex delivered a solid QQ1 2025 (quarter ended Aug 31, 2024) despite explicit headwinds from the expiration of the Employee Retention Tax Credit (ERTC). Reported total revenue rose 3% to $1.3185 billion, with gross margin at 71.2% and operating margin of 41.5%, resulting in net income of $427.4 million and diluted EPS of $1.18. When excluding the ERTC impact and one fewer processing day, revenue growth was 7% for the quarter, underscoring the company’s underlying demand trajectory. Management highlighted resilience in small and mid-sized business activity and progress in AI-enabled product initiatives designed to help clients recruit, retain, and pay employees more efficiently. Cash flow remained robust, with cash flow from operations of $546.1 million and free cash flow of $510.5 million; Paychex returned $457 million to shareholders through dividends ($353 million) and share repurchases ($104 million). The 12-month rolling ROE stood at a robust 46%. On guidance, Paychex maintained FY2025 targets: revenue growth of 4% to 5.5% (with ~200bp ERTC headwind), Management Solutions growth of 3% to 4%, PEO and insurance growth of 7% to 9%, and a full-year operating margin of 42% to 43%. The company also updated interest-rate assumptions to reflect 125bp of short-term rate cuts for the year. In summary, Paychex demonstrates healthy profitability and liquidity, a disciplined balance sheet, and a strategic product roadmap focused on AI-enabled HR and talent solutions that could extend its SMB market leadership.
Key Performance Indicators
Revenue
Increasing
1.32B
QoQ: 1.81% | YoY: 2.53%
Gross Profit
Increasing
938.50M
71.18% margin
QoQ: 2.02% | YoY: 1.37%
Operating Income
Increasing
546.70M
QoQ: 13.47% | YoY: 1.94%
Net Income
Increasing
427.40M
QoQ: 12.50% | YoY: 1.96%
EPS
Increasing
1.19
QoQ: 12.26% | YoY: 2.59%
Revenue Trend
Margin Analysis
Financial Highlights
Overview of QQ1 2025 performance and key metrics:
- Revenue: Reported $1.3185B, up 3% YoY; ex-ERTC headwinds and one fewer processing day imply ~7% growth in organic terms.
- Gross Margin: 71.18% (0.7118).
- Operating Margin: 41.46% (0.4146).
- EBITDA: $605.7M; EBITDA Margin = 0.459 (45.9%).
- Net Income: $427.4M; Net Margin = 32.42% (0.3242).
- EPS (GAAP): $1.18; Diluted EPS: $1.18; Adjusted Diluted EPS: $1.16.
- Cash Flow: CFO $546.1M; Free Cash Flow $510.5M; capital expenditures $35.6M (net).
- Shareholder Return: Dividends $353.4M; Share repurchases $104.0M; Total cash returned $457M.
- Balance Sheet: Cash and cash equivalents $1.46B; Total assets $10.49B; Total liabilities $6.64B; Total stockholders’ equity $3.85B; Net debt position shows cash net of debt at approximately -$0.59B.
- Liquidity: Cash and short-term investments of $1.498B (cash + short-term investments) with total liquidity supported by robust operating cash flow.
- Key Ratios: Current ratio 1.38; Debt/Total Capitalization ~18.4%; Debt/Equity ~0.23; Gross Margin ~71.2%; Operating Margin ~41.5%; Net Margin ~32.4%; ROE (12-month) ~46%.
- Growth Drivers: AI-enabled HCM suite expansions (Flex Engage, Perks, Recruiting Copilot); expanded HR advisory and outsourcing capabilities; ongoing go-to-market transformation with a broader SMB reach.
- Guidance Highlights: FY25 revenue +4% to +5.5% (includes ~200bp ERTC headwind); Management Solutions +3% to +4%; PEO/Insurance +7% to +9%; 2Q target margin ~40%; full-year margin 42%-43%; tax rate 24%-25%; guidance assumes 125bp cuts in short-term rates.
- Notable Observations: Management emphasized balance between revenue growth and profitability, with margin expansion ex-ERTC expected in Q2 and back-half uplift as ERTC headwind recedes.
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
1.32B
2.53%
1.81%
Gross Profit
938.50M
1.37%
2.02%
Operating Income
546.70M
1.94%
13.47%
Net Income
427.40M
1.96%
12.50%
EPS
1.19
2.59%
12.26%
Key Financial Ratios
Gross Profit Margin
Excellent
71.20%
Gross profit margin is exceptional, indicating strong pricing power and operational efficiency
Operating Profit Margin
Excellent
41.50%
Operating margin is exceptional, indicating strong pricing power and operational efficiency
Net Profit Margin
Excellent
32.40%
Net profit margin is exceptional, indicating strong pricing power and operational efficiency
Return on Assets
Fair
4.07%
Return on assets is acceptable but below top-tier companies
Return on Equity
Fair
11.10%
Return on equity is acceptable but below top-tier companies
Current Ratio
Adequate
1.38
Current ratio meets minimum requirements but limited cushion
Debt to Equity
Conservative
0.23
Debt-to-equity shows conservative leverage and low financial risk
P/E Ratio
Growth
27.64x
Elevated P/E suggests growth expectations or premium valuation
Price to Book
High Premium
12.27x
Very high premium suggests asset-light business model or lofty expectations
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