PAYX

Paychex delivered a strong third quarter with revenue growth of 20% to $1.8 billion and adjusted operating income growth of 22%, driven by effective execution on the Paycor integration and acceleration of AI-powered capabilities. The headline beat masks a more nuanced picture: organic revenue growth remained modest at approximately 5% on a full-year basis, with the back half of fiscal 2026 showing sequential improvement to roughly 6% organic growth as the company lapped tougher prior-year comparisons, particularly in the PEO segment where the prior-year medical plan enrollment headwind has now cycled. Management Solutions organic growth held steady at 4% in both Q2 and Q3, though the company expects acceleration in Q4 as it anniversaries the Paycor acquisition and benefits from cross-sell momentum. The PEO and Insurance Solutions segment was the standout performer, growing 9% with double-digit bookings and record retention rates, driven by strong worksite employee growth that continues to outpace industry peers and robust January medical plan enrollment that benefited from newly embedded AI-driven benefits intelligence. Adjusted operating margins expanded 80 basis points to 47.7%, reflecting productivity gains and cost discipline despite increased AI investments, with the company maintaining confidence in further margin expansion as AI capabilities scale across service and sales functions. The Paycor integration, which management characterized as largely complete on the expense synergy side and now focused on revenue synergies, is showing tangible momentum: bookings and broker referrals have reaccelerated to pre-acquisition levels, and the company is adding sales headcount in the enterprise segment to capture cross-sell opportunities for ASO, PEO, and retirement solutions. Management reaffirmed full-year fiscal 2026 guidance while raising interest income expectations to