Paychex, Inc. (the "Company," "Paychex," "we," "our," or "us")
today announced the following results for the fiscal quarter ended
February 29, 2024 (the "third quarter"), as compared to the
corresponding prior-year period:
For the three months
ended
For the nine months
ended
February 29,
February 28,
February 29,
February 28,
In millions, except per share
amounts
2024
2023
Change(2)
2024
2023
Change(2)
Total revenue
$
1,439.3
$
1,381.0
4
%
$
3,983.2
$
3,777.5
5
%
Operating income
$
649.8
$
611.9
6
%
$
1,692.3
$
1,579.8
7
%
Diluted earnings per share
$
1.38
$
1.29
7
%
$
3.62
$
3.33
9
%
Adjusted diluted earnings per share(1)
$
1.38
$
1.29
7
%
$
3.60
$
3.31
9
%
(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 said, "Total
revenue growth in the third fiscal quarter reflected a lower
contribution from our Employee Retention Tax Credit ("ERTC")
Service as compared with the prior year period. Excluding this
impact, total revenue growth accelerated in the third quarter. We
also delivered 7% growth in diluted earnings per share and
continued operating margin expansion in the quarter due to ongoing
expense discipline during a period of moderating small business
employment and wage growth. Small- and medium-sized businesses are
dealing with a tight job market for qualified workers, reduced
access to affordable growth capital, and inflationary
pressures."
Mr. Gibson also noted, "We remain committed to helping our
clients succeed by providing them with the innovative technology
solutions and HR expertise they need to navigate a complex and
dynamic environment. We are continuing to prioritize investments in
data, analytics, and artificial intelligence (AI) to streamline our
internal processes and offer greater value and actionable insights
to our clients, as evidenced by our recent creation of a new role
of senior vice president of data, analytics, and AI. We're proud to
announce the successful implementation of several additional
innovative AI models that significantly improve results for Paychex
and our clients. These span a wide range and include machine
learning and large language models that are bolstering our client
retention and upsell efforts, while also optimizing pricing
strategies."
Third Quarter Business Highlights
Total revenue increased to $1.4 billion for the third quarter,
growth of 4% over the prior year period. Highlights as compared
with the corresponding prior year period are as follows:
Management Solutions revenue increased 2% to $1.0 billion for
the third quarter primarily impacted by the following factors:
- Growth in the number of clients served across our suite of
human capital management ("HCM") solutions;
- Higher product penetration, including HR Solutions and
Retirement; and
- A decline in revenue from ancillary services, primarily due to
the winding down of our ERTC Service, which impacted growth by
approximately 300 basis points.
Professional Employer Organization ("PEO") and Insurance
Solutions revenue increased 8% to $345.5 million for the third
quarter primarily due to the following:
- Growth in the number of average PEO worksite employees;
and
- Increase in PEO insurance revenues.
Interest on funds held for clients increased 25% to $43.9
million for the third quarter primarily due to higher average
interest rates.
Total expenses increased 3% to $789.5 million for the third
quarter primarily due to the following:
- Higher compensation costs driven by increases in average
headcount and wage rates; and
- Increase in PEO direct insurance costs related to growth in
average worksite employees and PEO insurance revenues.
Operating income grew 6% to $649.8 million for the third
quarter. Operating margin (operating income as a percentage of
total revenue) expanded by approximately 80 basis points to 45.1%
for the third quarter compared to 44.3% for the prior year
period.
Other income, net increased $3.9 million to $9.4 million for the
third quarter primarily as a result of higher average interest
rates earned on our corporate investments.
Diluted earnings per share and adjusted diluted earnings per
share(1) increased 7% to $1.38 per share for the third quarter.
(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 nine months ended February 29, 2024 (the
"nine months") as compared with the corresponding prior year period
are as follows:
- Total revenue increased 5% to $4.0 billion.
- Operating income increased 7% to $1.7 billion.
- Diluted earnings per share increased 9% to $3.62 per share.
Adjusted diluted earnings per share(1) increased 9% to $3.60 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 nine months of the fiscal year. As of February 29,
2024, we had:
- Cash, restricted cash, and total corporate investments of $1.8
billion.
- Short-term and long-term borrowings, net of debt issuance
costs, of $817.3 million.
- Cash flow from operations was $1.7 billion for the nine
months.
Return to Stockholders During the Nine Months
- Paid cumulative dividends of $2.67 per share totaling $962.5
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 nine months
ended
February 29,
February 28,
February 29,
February 28,
$ in millions
2024
2023
Change
2024
2023
Change
Net income
$
498.6
$
467.4
7
%
$
1,310.5
$
1,206.9
9
%
Non-GAAP adjustments:
Excess tax benefits related to employee
stock-based compensation payments(1)
(0.3
)
(0.7
)
(5.5
)
(8.9
)
Adjusted net income
$
498.3
$
466.7
7
%
$
1,305.0
$
1,198.0
9
%
Diluted earnings per share(2)
$
1.38
$
1.29
7
%
$
3.62
$
3.33
9
%
Non-GAAP adjustments:
Excess tax benefits related to employee
stock-based compensation payments(1)
—
—
(0.02
)
(0.02
)
Adjusted diluted earnings per share
$
1.38
$
1.29
7
%
$
3.60
$
3.31
9
%
Net income
$
498.6
$
467.4
7
%
$
1,310.5
$
1,206.9
9
%
Non-GAAP adjustments:
Interest income, net
(9.4
)
(5.8
)
(33.3
)
(3.0
)
Income taxes
160.6
150.0
415.7
377.7
Depreciation and amortization expense
44.8
44.2
130.9
132.5
Total non-GAAP adjustments
196.0
188.4
513.3
507.2
EBITDA
$
694.6
$
655.8
6
%
$
1,823.8
$
1,714.1
6
%
(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:
- Management Solutions revenue is now anticipated to grow in the
range of 3.5% to 4.0%.
- Total revenue is now anticipated to grow in the range of 5% to
6%.
- Other income, net is now anticipated to be in the range of $40
million to $45 million.
- Other aspects of our guidance for fiscal 2024 remain unchanged
from what we provided previously.
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 third 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 April 02, 2024, 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.
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, laws, 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 interest rate changes;
- 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 nine months
ended
February 29,
February 28,
February 29,
February 28,
2024
2023
Change(2)
2024
2023
Change(2)
Revenue:
Management Solutions
$
1,049.9
$
1,024.5
2
%
$
2,936.1
$
2,825.3
4
%
PEO and Insurance Solutions
345.5
321.2
8
%
939.0
877.3
7
%
Total service revenue
1,395.4
1,345.7
4
%
3,875.1
3,702.6
5
%
Interest on funds held for clients(1)
43.9
35.3
25
%
108.1
74.9
44
%
Total revenue
1,439.3
1,381.0
4
%
3,983.2
3,777.5
5
%
Expenses:
Cost of service revenue
379.8
372.9
2
%
1,104.1
1,083.2
2
%
Selling, general and administrative
expenses
409.7
396.2
3
%
1,186.8
1,114.5
6
%
Total expenses
789.5
769.1
3
%
2,290.9
2,197.7
4
%
Operating income
649.8
611.9
6
%
1,692.3
1,579.8
7
%
Other income, net(1)
9.4
5.5
n/m
33.9
4.8
n/m
Income before income taxes
659.2
617.4
7
%
1,726.2
1,584.6
9
%
Income taxes
160.6
150.0
7
%
415.7
377.7
10
%
Net income
$
498.6
$
467.4
7
%
$
1,310.5
$
1,206.9
9
%
Basic earnings per share
$
1.39
$
1.30
7
%
$
3.64
$
3.35
9
%
Diluted earnings per share
$
1.38
$
1.29
7
%
$
3.62
$
3.33
9
%
Weighted-average common shares
outstanding
359.9
360.5
360.4
360.3
Weighted-average common shares
outstanding, assuming dilution
361.7
362.3
362.2
362.3
(1)
Further information on interest on funds
held for clients and other income, 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)
February 29,
May 31,
2024
2023
ASSETS
Cash and cash equivalents
$
1,693.6
$
1,222.0
Restricted cash
41.0
49.8
Corporate investments
36.6
373.4
Interest receivable
22.8
24.4
Accounts receivable, net of allowance for
credit losses
1,088.6
873.3
PEO unbilled receivables, net of advance
collections
590.7
528.5
Prepaid income taxes
21.0
48.1
Prepaid expenses and other current
assets
312.6
289.8
Current assets before funds held for
clients
3,806.9
3,409.3
Funds held for clients
6,079.5
4,118.8
Total current assets
9,886.4
7,528.1
Long-term corporate investments
1.6
3.8
Property and equipment, net of accumulated
depreciation
419.1
396.3
Operating lease right-of-use assets, net
of accumulated amortization
58.9
61.5
Intangible assets, net of accumulated
amortization
204.9
187.4
Goodwill
1,882.3
1,834.0
Long-term deferred costs
476.1
470.1
Other long-term assets
94.6
65.2
Total assets
$
13,023.9
$
10,546.4
LIABILITIES
Accounts payable
$
94.0
$
84.7
Accrued corporate compensation and related
items
173.1
209.9
Accrued worksite employee compensation and
related items
903.8
763.9
Short-term borrowings
18.8
10.2
Deferred revenue
51.7
47.3
Other current liabilities
518.0
395.4
Current liabilities before client fund
obligations
1,759.4
1,511.4
Client fund obligations
6,241.4
4,294.0
Total current liabilities
8,000.8
5,805.4
Accrued income taxes
99.3
83.0
Deferred income taxes
94.8
112.1
Long-term borrowings, net of debt issuance
costs
798.5
798.2
Operating lease liabilities
51.5
57.3
Other long-term liabilities
231.9
197.2
Total liabilities
9,276.8
7,053.2
STOCKHOLDERS’ EQUITY
Common stock, $0.01 par value; Authorized:
600.0 shares; Issued and outstanding: 360.0 shares as of February
29, 2024 and 360.5 shares as of May 31, 2023
3.6
3.6
Additional paid-in capital
1,702.5
1,626.4
Retained earnings
2,186.2
2,023.1
Accumulated other comprehensive loss
(145.2
)
(159.9
)
Total stockholders’ equity
3,747.1
3,493.2
Total liabilities and stockholders’
equity
$
13,023.9
$
10,546.4
PAYCHEX, INC.
CONSOLIDATED STATEMENTS OF
CASH FLOWS (Unaudited)
(In millions)
For the nine months
ended
February 29,
February 28,
2024
2023 (1)
OPERATING ACTIVITIES
Net income
$
1,310.5
$
1,206.9
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization
130.9
132.5
Amortization of premiums and discounts on
available-for-sale ("AFS") securities, net
(4.7
)
15.9
Amortization of deferred contract
costs
173.4
163.0
Stock-based compensation costs
45.1
46.0
Benefit from deferred income taxes
(20.9
)
(25.6
)
Provision for credit losses
14.9
13.1
Net realized losses/(gains) on sales of
AFS securities
0.0
(0.1
)
Changes in operating assets and
liabilities:
Interest receivable
1.6
(5.1
)
Accounts receivable and PEO unbilled
receivables, net
(3.5
)
(141.5
)
Prepaid expenses and other current
assets
9.2
(12.1
)
Accounts payable and other current
liabilities
184.2
78.6
Deferred costs
(184.3
)
(195.6
)
Net change in other long-term assets and
liabilities
21.6
17.3
Net change in operating lease right-of-use
assets and liabilities
(2.0
)
(4.5
)
Net cash provided by operating
activities
1,676.0
1,288.8
INVESTING ACTIVITIES
Purchases of AFS securities
(6,007.4
)
(12,592.4
)
Proceeds from sales and maturities of AFS
securities
6,345.6
13,051.0
Net (purchases of)/collections on
short-term accounts receivable
(101.8
)
1.3
Purchases of property and equipment
(120.1
)
(97.0
)
Proceeds from sales of property and
equipment
0.0
16.7
Acquisition of businesses, net of cash
acquired
(208.3
)
(4.3
)
Purchases of other assets, net
(25.8
)
(11.6
)
Net cash (used in)/provided by
investing activities
(117.8
)
363.7
FINANCING ACTIVITIES
Net change in client fund obligations
1,947.4
648.6
Net change in short-term borrowings
9.0
2.0
Dividends paid
(962.5
)
(854.1
)
Repurchases of common shares
(169.2
)
—
Contingent consideration paid for
acquisitions
—
(2.8
)
Activity related to equity-based plans
15.1
(12.2
)
Net cash provided by/(used in)
financing activities
839.8
(218.5
)
Net change in cash, restricted cash,
and equivalents
2,398.0
1,434.0
Cash, restricted cash, and equivalents,
beginning of period
2,134.9
928.4
Cash, restricted cash, and equivalents,
end of period
$
4,532.9
$
2,362.4
Reconciliation of cash, restricted
cash, and equivalents
Cash and cash equivalents
$
1,693.6
$
1,316.9
Restricted cash
41.0
56.6
Restricted cash and restricted cash
equivalents included in funds held for clients
2,798.3
988.9
Total cash, restricted cash, and
equivalents
$
4,532.9
$
2,362.4
(1)
The consolidated statement of cash flows
for the nine months ended February 28, 2023 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
decreased net cash provided by operating activities and increased
net cash provided by investing activities by $1.3 million each.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20240402199626/en/
Investor Relations: Jason Harbes, Director, Investor Relations
Phil Nicosia, Manager, Investor Relations (800) 828-4411
investors@paychex.com
Media Inquiries: Tracy Volkmann Manager, Public Relations (585)
387-6705 tvolkmann@paychex.com
Paychex (NASDAQ:PAYX)
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Paychex (NASDAQ:PAYX)
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