Paychex (PAYX) 10-Q: Breaking Down the Paycor Acquisition Impact

Paychex, a major player in Human Capital Management (HCM) solutions for businesses, just released its first-quarter financial results for fiscal year 2026. For anyone following the company, this report is a big deal, as it gives us a clear look at the impact of its recent, significant acquisition of Paycor. Let's dive into the numbers from their latest 10-Q filing to see how this strategic move is shaping their performance.

A Tale of Two Revenue Streams

Paychex's total revenue for the quarter ending August 31, 2025, jumped an impressive 17% to $1.54 billion compared to the same period last year. This growth story is largely driven by the Paycor acquisition.

Let's break down where this money comes from. The following flow diagram visualizes the company's income statement, from revenue sources down to net income.

As the chart shows, the company's revenue is generated from two main service segments, plus the interest it earns on client funds:

• Management Solutions: This is the company's core business, including payroll and HR services. Revenue here surged 21% to $1.16 billion. The filing directly attributes this strong performance to "the acquisition of Paycor" and its more "upmarket client base."
• PEO and Insurance Solutions: This segment, where Paychex acts as a co-employer to handle HR, benefits, and insurance for clients, saw more modest growth of 3%, reaching $329.1 million.
• Interest on Funds Held for Clients: This revenue line grew a healthy 27% to $47.6 million, also benefiting from larger investment balances following the Paycor deal.

The Cost of Growth: Expenses Tell the Other Side of the Story

While revenue growth is strong, the bottom line tells a more nuanced story. Operating income actually dipped slightly by 1% to $541.9 million, and net income fell 10% to $383.8 million.

So, where did the money go? The acquisition that fueled revenue growth also brought significant costs:

• Total expenses shot up 29% to nearly $1 billion.
• A new line item, "Acquisition-related costs," appeared, totaling $84.8 million for the quarter. These are costs associated with integrating Paycor.
• Interest expense ballooned from just $9.6 million last year to $68.2 million, a direct result of the debt taken on to finance the acquisition.

To provide a clearer picture of underlying performance, Paychex also reported non-GAAP (Generally Accepted Accounting Principles) figures, which exclude items like acquisition costs. On an adjusted basis, operating income grew a solid 15%, and adjusted net income was up 5%. This suggests that once the temporary costs of the integration are absorbed, the core business remains quite profitable.

Capital Allocation and Outlook

Despite the pressure on profits, Paychex continued to return value to shareholders. The company paid out $389.1 million in dividends and spent another $160.1 million repurchasing 1.1 million of its own shares.

The first quarter of fiscal 2026 clearly shows Paychex in a transformative phase. The Paycor acquisition has delivered a significant top-line boost and expanded its market reach. However, this growth comes at the cost of higher debt and substantial one-time expenses that are currently weighing on profitability.

The path forward for Paychex will depend on its ability to successfully integrate Paycor, achieve the anticipated synergies, and pay down its new debt load. For investors and industry watchers, the key will be to monitor whether the strong "adjusted" performance can translate back into robust GAAP earnings growth in the quarters to come.