On April 14, 2025, Paychex completed the acquisition of Paycor HCM, Inc. for approximately $4.1 billion. This acquisition is intended to enhance the Company’s capabilities in the upmarket segment, expand its sales force, and broaden its suite of AI-driven HCM solutions.

The Company's client base grew to approximately 800,000 clients as of May 31, 2025, up from 745,000 in the prior year. This growth was complemented by a 5% increase in HR solutions client worksite employees and a 3% increase in retirement solutions plans, demonstrating successful 'share of wallet' expansion.

Paychex continues to prioritize investments in technology, including enhancements to Paychex Flex, Paycor, and SurePayroll platforms. The Company is 'well positioned to capitalize on the AI opportunity' and 'successfully implemented several additional innovative AI models' in fiscal 2025 to improve efficiency and customer experience.

Client retention remained high, in the range of 82% to 83% for both fiscal 2025 and fiscal 2024, indicating effective management of client satisfaction and support. This consistent retention rate underscores the quality of the Company's integrated HCM solutions.

Management actively monitors and aids clients in navigating macroeconomic challenges like inflation and interest rates, as well as legislative changes and regulatory complexities. This proactive approach helps clients stay compliant and retain top talent, demonstrating effective operational management.

In fiscal 2024, management undertook cost optimization initiatives totaling $39.5 million, which included reductions to geographic footprint, reprioritization of technology investments, and headcount optimization. These actions aimed to improve efficiency and manage the cost structure.

The Company identifies cyberattacks, security vulnerabilities, and data privacy leaks as significant risks, noting 'the external environment increasingly hostile to information security.' Failure to keep pace with evolving threats or comply with new data privacy and AI laws could 'materially and adversely affect our business and operating results.'

The filing highlights ongoing risks from 'inflationary pressure, economic instability, changes in interest rates' and 'volatility in the political and economic environment.' These factors directly impact clients' willingness to pay for solutions and could lead to workforce reductions, reducing demand for Paychex's services.

The integration of Paycor HCM, Inc. 'may present challenges aligning disparate technology platforms, operational systems,' and 'may divert management’s attention.' There is no assurance that 'expected financial or business benefits' or 'anticipated synergies' will be realized, potentially impacting consolidated results and return on investment.

Paychex competes in a 'highly competitive and fragmented' HCM market primarily based on 'breadth of offerings, technology, ease of use, integration with third-party applications, service model, and price.' The Company believes its 'leading-edge technology and mobile applications, combined with personalized support' differentiate it.

With client retention rates consistently in the 82% to 83% range for both fiscal 2025 and 2024, Paychex demonstrates its ability to retain clients amidst competition. This high retention rate suggests strong client satisfaction and a robust competitive standing.

The acquisition of Paycor HCM, Inc. is explicitly aimed at enhancing the Company’s capabilities 'in the upmarket segment.' This strategic move signals Paychex's intent to expand its competitive reach beyond its traditional small and medium-sized business focus.

Total expenses increased by 8% to $3,364.0 million in fiscal 2025, up from $3,104.2 million in fiscal 2024. This rise was primarily driven by $162.3 million in acquisition-related costs from the Paycor deal, a 10% increase in PEO direct insurance costs, and a 9% increase in other expenses due to technology investments.

In fiscal 2024, Paychex recognized $39.5 million in cost optimization initiatives, which included reductions to its geographic footprint and headcount optimization. While expenses still grew in fiscal 2025, these prior initiatives likely helped manage the overall cost structure.

The GAAP operating margin decreased to 39.6% in fiscal 2025 from 41.2% in fiscal 2024. This decline is largely attributable to the impact of the Paycor acquisition and the expiration of the ERTC program, as adjusted operating margin, excluding these factors, actually increased to 42.5%.

Paychex is 'well positioned to capitalize on the AI opportunity' and made 'increased AI investments to improve efficiency, enhance the customer experience, and unlock new growth opportunities.' In fiscal 2025, the Company 'successfully implemented several additional innovative AI models that significantly improved results.'

The Company continued to make technology investments a priority, implementing enhancements to its Paychex Flex, Paycor, and SurePayroll platforms to improve client and employee experiences. This focus includes developing a 'modern, mobile, and intuitive user experience with self-service capabilities.'

Capitalized costs related to internally developed software increased to $1,129.7 million in fiscal 2025 from $1,010.1 million in fiscal 2024. This significant investment reflects ongoing commitment to building and enhancing proprietary technological capabilities.

Paychex issued $4.2 billion in fixed-rate corporate bonds in April 2025 to finance the acquisition of Paycor, leading to a significant increase in long-term debt to $4,548.4 million from $798.6 million in the prior year. This demonstrates a strategic use of debt for large-scale M&A.

Dividends paid to stockholders increased by 10% to $1,448.5 million in fiscal 2025, representing approximately 87% of net income. This consistent and growing dividend payout signals management's confidence in ongoing cash flow generation and commitment to returning capital to shareholders.

The Board authorized an additional $400.0 million share repurchase program in January 2024, with $104.5 million in repurchases executed in fiscal 2025. This program's stated purpose is to manage common stock dilution, demonstrating a balanced approach to capital returns.

Paychex was recognized by Ethisphere as one of the World’s Most Ethical Companies for the 17th consecutive time in 2025. This consistent recognition highlights the Company's long-standing commitment to ethical business practices and strong governance.

The Company invests in a robust well-being program focusing on the physical, emotional, community, career, and financial health of its employees. Additionally, it provides world-class training and development programs to attract and retain top talent, fostering a supportive work environment.

Cybersecurity risks are overseen by the Audit Committee of the Board, which receives quarterly updates from the CISO. Management's Security Governance Council (SGC) also develops and coordinates the enterprise security program, indicating a structured approach to risk management.

The average interest rate earned on combined funds held for clients and corporate investments decreased to 3.7% in fiscal 2025 from 3.8% in fiscal 2024. This decline occurred despite higher average investment balances and reflects a falling interest rate environment, which could impact future earnings.

The Company acknowledges that its clients are sensitive to 'negative changes in economic conditions,' including 'inflationary pressure and interest rates.' These macroeconomic factors could lead clients to reduce their workforce or spending on solutions, potentially decreasing demand for Paychex's services.

Paychex operates in an environment with an 'increasing number and complexity of federal, state, and local regulations,' including new data privacy and artificial intelligence laws. The Company proactively aids clients in navigating these changes, but failure to comply or adapt could 'adversely impact our business and reputation.'