- Sustained Growth in Revenue and Earnings in the Second
Quarter
- Raises Full Year Earnings Outlook
Paychex, Inc. (the "Company," "Paychex," "we," "our," or "us")
today announced the following results for the fiscal quarter ended
November 30, 2023 (the "second quarter"), as compared to the
corresponding prior-year period:
For the three months
ended
For the six months
ended
November 30,
November 30,
In millions, except per share
amounts
2023
2022
Change(2)
2023
2022
Change(2)
Total revenue
$
1,257.9
$
1,190.3
6
%
$
2,543.9
$
2,396.5
6
%
Operating income
$
506.2
$
472.3
7
%
$
1,042.5
$
967.9
8
%
Diluted earnings per share
$
1.08
$
0.99
9
%
$
2.24
$
2.04
10
%
Adjusted diluted earnings per share(1)
$
1.08
$
0.99
9
%
$
2.23
$
2.02
10
%
(1)
Adjusted diluted earnings per
share is not a United States ("U.S.") generally accepted accounting
principle ("GAAP") measure. Please refer to the "Non-GAAP Financial
Measures" section on page 3 of this press release for a discussion
of non-GAAP measures.
(2)
Percentage changes are calculated
based on unrounded numbers.
President and Chief Executive Officer, John Gibson commented,
“We are pleased with our results for the second quarter and the
first half of fiscal 2024, with total revenue growth of 6% and
diluted earnings per share and adjusted diluted earnings per share
growth through the first half of the fiscal year of 10%. The
macro-economic environment remains stable for small and mid-sized
businesses, who continue to face challenges in both the cost of and
access to growth capital; and finding quality talent in the current
labor market. Our Small Business Employment Watch continues to show
moderation in both job growth and wage inflation.”
Mr. Gibson also noted, “We continue to see demand for our HCM
technology, HR and insurance solutions, as businesses struggle to
comply with increasing regulations and a challenging HR landscape
and labor market.”
Second Quarter Business Highlights
Service revenue increased to $1.2 billion for the second
quarter, growth of 5% over the prior year period. Highlights as
compared to the corresponding prior year period are as follows:
Management Solutions revenue increased 4% to $930.7 million for
the second quarter primarily due to the following factors:
- Growth in the number of clients served across our suite of
human capital management ("HCM") solutions;
- Higher revenue per client from price realization and product
penetration, including HR Solutions and retirement; and
- Growth in ancillary services.
Professional Employer Organization ("PEO") and Insurance
Solutions revenue increased 8% to $295.7 million for the second
quarter primarily due to the following:
- Growth in the number of average PEO worksite employees;
- Increase in PEO insurance revenues; and
- Higher revenue from ancillary services.
Interest on funds held for clients increased 44% to $31.5
million for the second quarter primarily due to higher average
interest rates.
Total expenses increased 5% to $751.7 million for the second
quarter primarily due to the following:
- Higher compensation costs driven by increases in average wage
rates;
- Increase in PEO direct insurance costs related to growth in
average worksite employees and PEO insurance revenues; and
- Continued investment in technology, sales and marketing.
Operating income grew 7% to $506.2 million for the second
quarter. Operating margin (operating income as a percentage of
total revenue) increased to 40.2% for the second quarter compared
to 39.7% for the prior year period.
Other income/(expense) was $11.7 million for the second quarter
compared to $2.9 million in the prior year period primarily as a
result of higher average interest rates earned on our corporate
investments as well as higher average investment balances.
Our effective income tax rate was 24.2% for the second quarter
and the prior year period. Both periods were impacted by the
recognition of net discrete tax benefits related to employee
stock-based compensation payments.
Diluted earnings per share increased 9% to $1.08 per share for
the second quarter and adjusted diluted earnings per share(1)
increased 9% to $1.08 per share for the same period.
(1)
Adjusted diluted earnings per
share is not a U.S. GAAP measure. Please refer to the "Non-GAAP
Financial Measures" section on page 3 of this press release for a
discussion of non-GAAP measures.
Fiscal Year-To-Date Business Highlights
Highlights for the six months ended November 30, 2023 (the “six
months”) as compared to the corresponding prior year period are as
follows:
- Total revenue increased 6% to $2.5 billion.
- Operating income increased 8% to $1.0 billion.
- Diluted earnings per share increased 10% to $2.24 per share.
Adjusted diluted earnings per share(1) increased 10% to $2.23 per
share.
(1)
Adjusted diluted earnings per
share is not a U.S. GAAP measure. Please refer to the "Non-GAAP
Financial Measures" section on page 3 of this press release for a
discussion of non-GAAP measures.
Financial Position and Liquidity
Our financial position and cash flow generation remained strong
during the first half of the fiscal year. As of November 30, 2023,
we had:
- Cash, restricted cash, and total corporate investments of $1.4
billion.
- Short-term and long-term borrowings, net of debt issuance
costs, of $812.0 million.
- Cash flow from operations was $1.0 billion for the six
months.
Return to Stockholders During the Six Months
- Paid cumulative dividends of $1.78 per share totaling $642.1
million.
- Repurchased 1.5 million shares of our common stock for $169.2
million.
Non-GAAP Financial Measures
For the three months
ended
For the six months
ended
November 30,
November 30,
$ in millions
2023
2022
Change
2023
2022
Change
Net income
$
392.7
$
360.3
9
%
$
811.9
$
739.5
10
%
Non-GAAP adjustments:
Excess tax benefits related to employee
stock-based compensation payments(1)
(1.1
)
(0.9
)
(5.2
)
(8.2
)
Adjusted net income
$
391.6
$
359.4
9
%
$
806.7
$
731.3
10
%
Diluted earnings per share(2)
$
1.08
$
0.99
9
%
$
2.24
$
2.04
10
%
Non-GAAP adjustments:
Excess tax benefits related to employee
stock-based compensation payments(1)
—
—
(0.01
)
(0.02
)
Adjusted diluted earnings per share
$
1.08
$
0.99
9
%
$
2.23
$
2.02
10
%
Net income
$
392.7
$
360.3
9
%
$
811.9
$
739.5
10
%
Non-GAAP adjustments:
Interest (income)/expense, net
(11.8
)
(0.9
)
(23.9
)
2.8
Income taxes
125.2
114.9
255.1
227.7
Depreciation and amortization expense
44.9
44.3
86.1
88.3
Total non-GAAP adjustments
158.3
158.3
317.3
318.8
EBITDA
$
551.0
$
518.6
6
%
$
1,129.2
$
1,058.3
7
%
(1)
Net tax windfall benefits related
to employee stock-based compensation payments recognized in income
taxes. This item is subject to volatility and will vary based on
employee decisions on exercising employee stock options and
fluctuations in our stock price, neither of which is within the
control of management.
(2)
The calculation of the impact of
non-GAAP adjustments on diluted earnings per share is performed on
each line independently. The table may not add down by +/- $0.01
due to rounding.
In addition to reporting net income and diluted earnings per
share, which are U.S. GAAP measures, we present adjusted net
income, adjusted diluted earnings per share, and earnings before
interest, taxes, depreciation, and amortization ("EBITDA") which
are non-GAAP measures. We believe these additional measures are
indicators of our core business operations’ performance period over
period. Adjusted net income, adjusted diluted earnings per share,
and EBITDA are not calculated through the application of U.S. GAAP
and are not required forms of disclosure by the Securities and
Exchange Commission ("SEC"). As such, they should not be considered
a substitute for the U.S. GAAP measures of net income, and diluted
earnings per share, and, therefore, they should not be used in
isolation but in conjunction with the U.S. GAAP measures. The use
of any non-GAAP measure may produce results that vary from the U.S.
GAAP measure and may not be comparable to a similarly defined
non-GAAP measure used by other companies.
Business Outlook
Our business outlook for the fiscal year ending May 31, 2024
("fiscal 2024") incorporates current assumptions and market
conditions. Changes in the macroeconomic environment could alter
our guidance. With consideration of these impacts, we have updated
our business outlook as follows:
- PEO and Insurance Solutions revenue is now anticipated to grow
in the range of 7% to 9%.
- Other income, net is now expected to be in the range of $35
million to $40 million.
- Adjusted diluted earnings per share(1) is now anticipated to
grow in the range of 10% to 11%.
- Other aspects of our guidance for fiscal 2024 remain unchanged
from what we provided previously.
(1)
Adjusted diluted earnings per
share is not a U.S. GAAP measure. Please refer to the "Non-GAAP
Financial Measures" section on page 3 of this press release for a
discussion of non-GAAP measures.
Environmental, Social, and Governance
("ESG")
As part of what it means to be Paychex, we are focusing our ESG
efforts on actions we can take to create positive impact. To learn
more about our latest initiatives, please visit our Corporate
Social Responsibility webpage. The information available on our
website is not a part of, and is not incorporated into, this press
release.
Quarterly Report on Form 10-Q ("Form 10-Q")
We anticipate filing our Form 10-Q for the second quarter within
the next day, and it will be available at
https://investor.paychex.com. This press release should be read in
conjunction with the Form 10-Q and the related Notes to
Consolidated Financial Statements and Management's Discussion and
Analysis of Financial Condition and Results of Operations contained
in that Form 10-Q.
Webcast Details
Interested parties may access the webcast of our Earnings
Release Conference Call, scheduled for December 21, 2023, at 9:30
a.m. Eastern Time, at https://investor.paychex.com. The webcast
will be archived for approximately 90 days. Our news releases,
current financial information, SEC filings, and investor
presentations are also accessible at
https://investor.paychex.com.
About Paychex
Paychex, Inc. (Nasdaq: PAYX) is an industry-leading HCM company
delivering a full suite of technology and advisory services in
human resources, employee benefit solutions, insurance, and
payroll. The company serves approximately 740,000 customers in the
U.S. and Europe and pays one out of every 12 American private
sector employees. The more than 16,000 people at Paychex are
committed to helping businesses succeed and building thriving
communities where they work and live. To learn more, visit
www.paychex.com and stay connected on Twitter and LinkedIn.
Cautionary Note Regarding Forward-Looking Statements
Certain written and oral statements made by us may constitute
"forward-looking statements" within the meaning of the safe harbor
provisions of the U.S. Private Securities Litigation Reform Act of
1995. Forward-looking statements can be identified by such words
and phrases as "expect," "outlook," "will," guidance,"
"projections," "anticipate," "believe," "could," "may," "possible,"
"potential" and other similar words or phrases. Examples of
forward-looking statements include, among others, statements we
make regarding operating performance, events, or developments that
we expect or anticipate will occur in the future, including
statements relating to our outlook, revenue growth, earnings,
earnings-per-share growth, or similar projections.
Forward-looking statements are neither historical facts nor
assurances of future performance. Instead, they are based only on
our current beliefs, expectations, and assumptions regarding the
future of our business, future plans and strategies, projections,
anticipated events and trends, the economy, and other future
conditions. Because forward-looking statements relate to the
future, they are subject to inherent uncertainties, risks, and
changes in circumstances that are difficult to predict, many of
which are outside our control. Our actual results and financial
condition may differ materially from those indicated in the
forward-looking statements. Therefore, you should not place undue
reliance upon any of these forward-looking statements. Important
factors that could cause our actual results and financial condition
to differ materially from those indicated in the forward-looking
statements include, among others, the following:
- our ability to keep pace with changes in technology or provide
timely enhancements to our solutions and support;
- software defects, undetected errors, and development delays for
our solutions;
- the possibility of cyberattacks, security vulnerabilities or
Internet disruptions, including data security and privacy leaks,
and data loss and business interruptions;
- the possibility of failure of our business continuity plan
during a catastrophic event;
- the failure of third-party service providers to perform their
functions;
- the possibility that we may be exposed to additional risks
related to our co-employment relationship with our PEO
business;
- changes in health insurance and workers’ compensation insurance
rates and underlying claim trends;
- risks related to acquisitions and the integration of the
businesses we acquire;
- our clients’ failure to reimburse us for payments made by us on
their behalf;
- the effect of changes in government regulations mandating the
amount of tax withheld or the timing of remittances;
- our failure to comply with covenants in our debt
agreements;
- changes in governmental regulations and policies;
- our ability to comply with U.S. and foreign laws and
regulations;
- our compliance with data privacy laws and regulations;
- our failure to protect our intellectual property rights;
- potential outcomes related to pending or future litigation
matters;
- the impact of macroeconomic factors on the U.S. and global
economy, and in particular on our small- and medium-sized business
clients;
- volatility in the political and economic environment, including
inflation and changes in interest rates;
- changes in the availability and retention of qualified people;
and
- the possible effects of negative publicity on our reputation
and the value of our brand.
Any of these factors, as well as such other factors as discussed
in our SEC filings, could cause our actual results to differ
materially from our anticipated results. The information provided
in this document is based upon the facts and circumstances known as
of the date of this press release, and any forward-looking
statements made by us in this document speak only as of the date on
which they are made. Except as required by law, we undertake no
obligation to update these forward-looking statements after the
date of issuance of this press release to reflect events or
circumstances after such date, or to reflect the occurrence of
unanticipated events.
PAYCHEX, INC.
CONSOLIDATED STATEMENTS OF
INCOME (Unaudited)
(In millions, except per share
amounts)
For the three months
ended
For the six months
ended
November 30,
November 30,
2023
2022
Change(2)
2023
2022
Change(2)
Revenue:
Management Solutions
$
930.7
$
895.3
4
%
$
1,886.2
$
1,800.8
5
%
PEO and Insurance Solutions
295.7
273.3
8
%
593.5
556.1
7
%
Total service revenue
1,226.4
1,168.6
5
%
2,479.7
2,356.9
5
%
Interest on funds held for clients(1)
31.5
21.7
44
%
64.2
39.6
62
%
Total revenue
1,257.9
1,190.3
6
%
2,543.9
2,396.5
6
%
Expenses:
Cost of service revenue
364.1
359.3
1
%
724.3
710.3
2
%
Selling, general and administrative
expenses
387.6
358.7
8
%
777.1
718.3
8
%
Total expenses
751.7
718.0
5
%
1,501.4
1,428.6
5
%
Operating income
506.2
472.3
7
%
1,042.5
967.9
8
%
Other income/(expense), net(1)
11.7
2.9
n/m
24.5
(0.7
)
n/m
Income before income taxes
517.9
475.2
9
%
1,067.0
967.2
10
%
Income taxes
125.2
114.9
9
%
255.1
227.7
12
%
Net income
$
392.7
$
360.3
9
%
$
811.9
$
739.5
10
%
Basic earnings per share
$
1.09
$
1.00
9
%
$
2.25
$
2.05
10
%
Diluted earnings per share
$
1.08
$
0.99
9
%
$
2.24
$
2.04
10
%
Weighted-average common shares
outstanding
360.5
360.5
360.6
360.2
Weighted-average common shares
outstanding, assuming dilution
362.1
362.3
362.4
362.3
(1)
Further information on interest
on funds held for clients and other expense, net, and the short-
and long-term effects of changing interest rates can be found in
our filings with the SEC, including our Quarterly Reports on Form
10-Q and our Annual Report on Form 10-K, as applicable, under the
caption “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” and subheadings “Results of
Operations” and “Market Risk Factors.” These filings are accessible
at https://investor.paychex.com.
(2)
Percentage changes are calculated
based on unrounded numbers.
n/m – not meaningful
PAYCHEX, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In millions, except per share
amounts)
November 30,
May 31,
2023
2023
ASSETS
Cash and cash equivalents
$
1,363.1
$
1,222.0
Restricted cash
47.9
49.8
Corporate investments
34.4
373.4
Interest receivable
23.7
24.4
Accounts receivable, net of allowance for
credit losses
1,082.7
873.3
PEO unbilled receivables, net of advance
collections
544.4
528.5
Prepaid income taxes
83.5
48.1
Prepaid expenses and other current
assets
304.3
289.8
Current assets before funds held for
clients
3,484.0
3,409.3
Funds held for clients
5,439.7
4,118.8
Total current assets
8,923.7
7,528.1
Long-term corporate investments
1.6
3.8
Property and equipment, net of accumulated
depreciation
417.6
396.3
Operating lease right-of-use assets, net
of accumulated amortization
59.4
61.5
Intangible assets, net of accumulated
amortization
201.0
187.4
Goodwill
1,882.3
1,834.0
Long-term deferred costs
474.6
470.1
Other long-term assets
91.9
65.2
Total assets
$
12,052.1
$
10,546.4
LIABILITIES
Accounts payable
$
92.3
$
84.7
Accrued corporate compensation and related
items
164.1
209.9
Accrued worksite employee compensation and
related items
806.2
763.9
Short-term borrowings
13.6
10.2
Deferred revenue
55.1
47.3
Other current liabilities
496.3
395.4
Current liabilities before client fund
obligations
1,627.6
1,511.4
Client fund obligations
5,626.8
4,294.0
Total current liabilities
7,254.4
5,805.4
Accrued income taxes
93.2
83.0
Deferred income taxes
103.0
112.1
Long-term borrowings, net of debt issuance
costs
798.4
798.2
Operating lease liabilities
53.5
57.3
Other long-term liabilities
225.2
197.2
Total liabilities
8,527.7
7,053.2
STOCKHOLDERS’ EQUITY
Common stock, $0.01 par value; Authorized:
600.0 shares; Issued and outstanding: 359.8 shares as of November
30, 2023 and 360.5 shares as of May 31, 2023
3.6
3.6
Additional paid-in capital
1,678.6
1,626.4
Retained earnings
2,009.4
2,023.1
Accumulated other comprehensive loss
(167.2
)
(159.9
)
Total stockholders’ equity
3,524.4
3,493.2
Total liabilities and stockholders’
equity
$
12,052.1
$
10,546.4
PAYCHEX, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In millions)
For the six months
ended
November 30,
2023
2022 (1)
OPERATING ACTIVITIES
Net income
$
811.9
$
739.5
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization
86.1
88.3
Amortization of premiums and discounts on
available-for-sale ("AFS") securities, net
(2.9
)
11.2
Amortization of deferred contract
costs
115.1
107.5
Stock-based compensation costs
30.7
29.7
Benefit from deferred income taxes
(6.4
)
(15.3
)
Provision for credit losses
10.0
8.1
Net realized losses/(gains) on sales of
AFS securities
0.0
(0.1
)
Changes in operating assets and
liabilities:
Interest receivable
0.7
(0.9
)
Accounts receivable and PEO unbilled
receivables, net
52.9
(82.5
)
Prepaid expenses and other current
assets
(46.3
)
(43.4
)
Accounts payable and other current
liabilities
66.6
(11.2
)
Deferred costs
(123.1
)
(122.1
)
Net change in other long-term assets and
liabilities
10.1
13.8
Net change in operating lease right-of-use
assets and liabilities
(1.1
)
(2.9
)
Net cash provided by operating
activities
1,004.3
719.7
INVESTING ACTIVITIES
Purchases of AFS securities
(3,303.7
)
(6,504.9
)
Proceeds from sales and maturities of AFS
securities
3,607.0
7,631.3
Net purchases of short-term accounts
receivable
(104.8
)
(33.8
)
Purchases of property and equipment
(79.4
)
(65.9
)
Proceeds from sales of property and
equipment
0.0
9.7
Acquisition of businesses, net of cash
acquired
(208.3
)
—
Purchases of other assets, net
(20.5
)
(8.6
)
Net cash (used in)/provided by
investing activities
(109.7
)
1,027.8
FINANCING ACTIVITIES
Net change in client fund obligations
1,332.8
(468.7
)
Net change in short-term borrowings
3.8
2.0
Dividends paid
(642.1
)
(569.3
)
Repurchases of common shares
(169.2
)
—
Activity related to equity-based plans
7.0
(15.1
)
Net cash provided by/(used in)
financing activities
532.3
(1,051.1
)
Net change in cash, restricted cash,
and equivalents
1,426.9
696.4
Cash, restricted cash, and equivalents,
beginning of period
2,134.9
928.4
Cash, restricted cash, and equivalents,
end of period
$
3,561.8
$
1,624.8
Reconciliation of cash, restricted
cash, and equivalents
Cash and cash equivalents
$
1,363.1
$
1,096.5
Restricted cash
47.9
68.2
Restricted cash and restricted cash
equivalents included in funds held for clients
2,150.8
460.1
Total cash, restricted cash, and
equivalents
$
3,561.8
$
1,624.8
(1)
The consolidated statement of
cash flows for the six months ended November 30, 2022 includes a
revision to previously reported amounts related to the presentation
of the cash flows associated with the short-term receivables
purchased from the Company’s clients under non-recourse
arrangements. The revision increased net cash provided by operating
activities and decreased net cash provided by investing activities
by $33.8 million each.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20231221247001/en/
Investor Relations: Bob Schrader, CFO, or Terri Allen
585‑383‑3406 Media Inquiries: Chris Muller, Director, Corporate
Communications 585‑338-4346
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