- Solid Total Revenue Growth and Operating Margin
Expansion
- Full Year 2024 Diluted EPS Growth of 9%; Adjusted Diluted
EPS(1) Growth of 11%
- Issues Fiscal 2025 Business Outlook
Paychex, Inc. (the "Company," "Paychex," "we," "our," or "us")
today announced the following results for the fiscal quarter ended
May 31, 2024 (the "fourth quarter") and fiscal year ended May 31,
2024 ("fiscal 2024"), as compared to the corresponding prior-year
period:
Fourth Quarter
Fiscal Year
In millions, except per share
amounts
2024
2023
Change(2)
2024
2023
Change(2)
Total revenue
$
1,295.1
$
1,229.6
5
%
$
5,278.3
$
5,007.1
5
%
Operating income
$
481.8
$
453.3
6
%
$
2,174.1
$
2,033.1
7
%
Diluted earnings per share
$
1.05
$
0.97
8
%
$
4.67
$
4.30
9
%
Adjusted diluted earnings per share(1)
$
1.12
$
0.97
15
%
$
4.72
$
4.27
11
%
(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 4 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,
“As we close out the fiscal year, I am pleased to report that
Paychex delivered solid financial results, reflecting our ability
to navigate changing market conditions by providing innovative HR
technology and advisory solutions that deliver value for our
clients and their employees and continually finding ways to operate
more efficiently as a company. In fiscal 2024, we achieved 5%
growth in total revenue, 9% growth in diluted earnings per share
and 11% growth in adjusted diluted earnings per share. These
results are a testament to the hard work and dedication of our more
than 16,000 employees and the investments we have made in our
technology and advisory solutions."
Mr. Gibson continued, "Small and mid-size businesses continue to
face a challenging operating environment due to complex
regulations, a tight labor market and inflationary pressures. Our
purpose remains to help these businesses succeed, and we believe we
are well positioned to achieve that mission in the upcoming fiscal
year.”
Fourth Quarter Business Highlights
Total revenue increased to $1.3 billion for the fourth quarter,
growth of 5% over the prior year period, which reflects a lower
contribution from our employee retention tax credit ("ERTC")
service, impacting growth by approximately 300 basis points.
Highlights as compared with the corresponding prior year period are
as follows:
Management Solutions revenue increased 3% to $930.3 million for
the fourth quarter, primarily impacted by the following
factors:
- Continued growth in the number of clients served across our
suite of human capital management ("HCM") solutions;
- Higher product penetration, including Human Resource Solutions
and Retirement Services; and
- Lower revenue from ancillary services, primarily due to the
expiration of our ERTC Service.
Professional Employer Organization ("PEO") and Insurance
Solutions revenue increased 9% to $326.6 million for the fourth
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 54% to $38.2
million for the fourth quarter primarily due to higher average
interest rates and invested balances and lower realized losses on
investment sales.
Total expenses increased 5% to $813.3 million for the fourth
quarter primarily due to the following:
- Cost optimization initiatives totaling $39.5 million, including
further reductions to our geographic footprint, reprioritization of
certain technology investments and headcount optimization; and
- Increase in PEO direct insurance costs related to growth in
average worksite employees and wages, and PEO insurance revenues;
offset by
- Lower compensation-related expenses and discretionary
spending.
Total expenses, excluding one-time cost optimization initiatives
noted above, were relatively flat for the fourth quarter compared
to the prior year period.
Operating income grew 6% to $481.8 million for the fourth
quarter and adjusted operating income(1) grew 15% to $521.3
million. Operating margin (operating income as a percentage of
total revenue) was 37.2% for the fourth quarter compared to 36.9%
for the prior year period. Adjusted operating margin(1) (operating
income, adjusted for one-time items, as a percentage of total
revenue) was 40.2% for the fourth quarter compared to 36.9% for the
prior year period.
Other income, net remained relatively flat for the fourth
quarter compared to the prior year period.
Our effective income tax rate was 22.8% for the fourth quarter
and 24.4% for the prior year period. The current year fourth
quarter was impacted by the recognition of net discrete tax
benefits related to employee stock-based compensation payments.
Diluted earnings per share increased 8% to $1.05 per share and
adjusted diluted earnings per share(1) increased 15% to $1.12 per
share for the fourth quarter.
(1)
Adjusted operating income, adjusted
operating margin, adjusted operating margin and adjusted diluted
earnings per share are not U.S. GAAP measures. Please refer to the
"Non-GAAP Financial Measures" section on page 4 of this press
release for a discussion of non-GAAP measures.
Fiscal Year Business Highlights
Highlights for fiscal 2024 as compared with the corresponding
prior year are as follows:
- Total revenue increased 5% to $5.3 billion.
- Operating income increased 7% to $2.2 billion and adjusted
operating income(1) increased 9% to $2.2 billion. Operating margin
was 41.2% for the fiscal year compared to 40.6% for the prior year.
Adjusted operating margin(1) was 41.9% for the fiscal year compared
to 40.6% for the prior year.
- Our effective income tax rate was 23.8% for fiscal 2024
compared to 24.0% for the fiscal year ended May 31, 2023. 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 $4.67 per share.
Adjusted diluted earnings per share(1) increased 11% to $4.72 per
share.
(1)
Adjusted operating income, adjusted
operating margin and adjusted diluted earnings per share are not
U.S. GAAP measures. Please refer to the "Non-GAAP Financial
Measures" section on page 4 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 fiscal 2024. As of May 31, 2024, we had:
- Cash, restricted cash, and total corporate investments of $1.6
billion.
- Short-term and long-term borrowings, net of debt issuance
costs, of $817.3 million.
- Cash flow from operations was $1.9 billion for the fiscal
year.
Return to Stockholders During Fiscal 2024
- Paid cumulative dividends of $3.65 per share totaling $1.3
billion, resulting in a dividend payout ratio of 78% of net
income.
- Repurchased 1.5 million shares of our common stock for $169.2
million.
Non-GAAP Financial Measures
For the three months
ended
For the twelve months
ended
May 31,
May 31,
$ in millions
2024
2023
Change
2024
2023
Change
Operating income
$
481.8
$
453.3
6
%
$
2,174.1
$
2,033.1
7
%
Non-GAAP adjustments:
Cost optimization initiatives(1)
39.5
—
39.5
—
Total non-GAAP adjustments
39.5
—
39.5
—
Adjusted operating income
$
521.3
$
453.3
15
%
$
2,213.6
$
2,033.1
9
%
Adjusted operating margin
40.2
%
36.9
%
41.9
%
40.6
%
Net income
$
379.9
$
350.4
8
%
$
1,690.4
$
1,557.3
9
%
Non-GAAP adjustments:
Excess tax benefit related to employee
stock-based compensation payments(2)
(5.7
)
—
(11.2
)
(8.9
)
Cost optimization initiatives(1)
29.9
—
29.9
—
Total non-GAAP adjustments
24.2
—
18.7
(8.9
)
Adjusted net income
$
404.1
$
350.4
15
%
$
1,709.1
$
1,548.4
10
%
Diluted earnings per share(3)
$
1.05
$
0.97
8
%
$
4.67
$
4.30
9
%
Non-GAAP adjustments:
Excess tax benefit related to employee
stock-based compensation payments(2)
(0.02
)
—
(0.03
)
(0.02
)
Cost optimization initiatives(1)
0.08
—
0.08
—
Total non-GAAP adjustments
0.07
—
0.05
(0.02
)
Adjusted diluted earnings per share
$
1.12
$
0.97
15
%
$
4.72
$
4.27
11
%
Net income
$
379.9
$
350.4
8
%
$
1,690.4
$
1,557.3
9
%
Non-GAAP adjustments:
Interest income, net
(12.1
)
(9.4
)
(45.4
)
(12.4
)
Income taxes
111.9
113.2
527.6
490.9
Depreciation and amortization expense
45.6
44.1
176.5
176.6
Total non-GAAP adjustments
145.4
147.9
658.7
655.1
EBITDA
$
525.3
$
498.3
5
%
$
2,349.1
$
2,212.4
6
%
Cost optimization initiatives(1)
39.5
—
39.5
—
Adjusted EBITDA
$
564.8
$
498.3
13
%
$
2,388.6
$
2,212.4
8
%
(1)
One-time costs and corresponding tax
benefits recognized related to our cost optimization initiatives,
including further reductions to our geographic footprint,
reprioritization of certain technology investments and headcount
optimization.
(2)
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.
(3)
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 operating income, operating margin, net
income and diluted earnings per share, which are U.S. GAAP
measures, we present adjusted operating income, adjusted operating
margin, adjusted net income, adjusted diluted earnings per share,
earnings before interest, taxes, depreciation, and amortization
("EBITDA") and adjusted EBITDA, which are non-GAAP measures. We
believe these additional measures are indicators of our core
business operations’ performance period over period. Adjusted
operating income, adjusted operating margin, adjusted net income,
adjusted diluted earnings per share, EBITDA, and adjusted 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 operating income, 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, 2025
("fiscal 2025") 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:
- Total revenue is anticipated to grow in the range of 4.0% to
5.5%.
- Adjusted diluted earnings per share(1) is anticipated to grow
in the range of 5% to 7%.
- Management Solutions revenue is anticipated to grow in the
range of 3.0% to 4.0%.
- PEO and Insurance Solutions revenue is anticipated to grow in
the range of 7.0% to 9.0%.
- Interest on funds held for clients is expected to be in the
range of $150 million to $160 million.
- Operating margin is anticipated to be in the range of 42% to
43%.
- Other income, net is anticipated to be in the range of $35
million to $40 million.
- The effective income tax rate for fiscal 2025 is anticipated to
be in the range of 24% to 25%.
(1) Adjusted diluted earnings per share is
not a U.S. GAAP measure. Please refer to the "Non-GAAP Financial
Measures" section on page 4 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
https://www.paychex.com/corporate/corporate-responsibility. The
information available on our website is not a part of, and is not
incorporated into, this press release.
Annual Report on Form 10-K ("Form 10-K")
We anticipate filing our Form 10-K before the end of July 2024,
and it will be available at https://investor.paychex.com. This
press release should be read in conjunction with the Form 10-K 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-K.
Webcast Details
Interested parties may access the webcast of our Earnings
Release Conference Call, scheduled for June 26, 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 over 745,000 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 and artificial intelligence
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 twelve months
ended
May 31,
May 31,
2024
2023
Change(2)
2024
2023
Change(2)
Revenue:
Management Solutions
$
930.3
$
905.2
3
%
$
3,866.4
$
3,730.5
4
%
PEO and Insurance Solutions
326.6
299.5
9
%
1,265.6
1,176.8
8
%
Total service revenue
1,256.9
1,204.7
4
%
5,132.0
4,907.3
5
%
Interest on funds held for clients(1)
38.2
24.9
54
%
146.3
99.8
47
%
Total revenue
1,295.1
1,229.6
5
%
5,278.3
5,007.1
5
%
Expenses:
Cost of service revenue
375.2
369.8
1
%
1,479.3
1,453.0
2
%
Selling, general and administrative
expenses
438.1
406.5
8
%
1,624.9
1,521.0
7
%
Total expenses
813.3
776.3
5
%
3,104.2
2,974.0
4
%
Operating income
481.8
453.3
6
%
2,174.1
2,033.1
7
%
Other income, net(1)
10.0
10.3
(2
)
%
43.9
15.1
n/m
Income before income taxes
491.8
463.6
6
%
2,218.0
2,048.2
8
%
Income taxes
111.9
113.2
(1
)
%
527.6
490.9
8
%
Net income
$
379.9
$
350.4
8
%
$
1,690.4
$
1,557.3
9
%
Basic earnings per share
$
1.06
$
0.97
9
%
$
4.69
$
4.32
9
%
Diluted earnings per share
$
1.05
$
0.97
8
%
$
4.67
$
4.30
9
%
Weighted-average common shares
outstanding
360.0
360.5
360.3
360.4
Weighted-average common shares
outstanding, assuming dilution
361.8
362.3
362.1
362.3
Cash dividends per common share
$
0.98
$
0.89
$
3.65
$
3.26
(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)
May 31,
2024
2023
ASSETS
Cash and cash equivalents
$
1,468.9
$
1,222.0
Restricted cash
47.8
49.8
Corporate investments
33.9
373.4
Interest receivable
23.3
24.4
Accounts receivable, net of allowance for
credit losses
1,059.6
873.3
PEO unbilled receivables, net of advance
collections
542.4
528.5
Prepaid income taxes
47.5
48.1
Prepaid expenses and other current
assets
321.9
289.8
Current assets before funds held for
clients
3,545.3
3,409.3
Funds held for clients
3,706.2
4,118.8
Total current assets
7,251.5
7,528.1
Long-term corporate investments
3.7
3.8
Property and equipment, net of accumulated
depreciation
411.7
396.3
Operating lease right-of-use assets, net
of accumulated amortization
46.9
61.5
Intangible assets, net of accumulated
amortization
194.5
187.4
Goodwill
1,882.7
1,834.0
Long-term deferred costs
477.1
470.1
Other long-term assets
115.0
65.2
Total assets
$
10,383.1
$
10,546.4
LIABILITIES
Accounts payable
$
104.3
$
84.7
Accrued corporate compensation and related
items
135.0
209.9
Accrued worksite employee compensation and
related items
662.4
763.9
Short-term borrowings
18.7
10.2
Deferred revenue
50.2
47.3
Other current liabilities
469.8
395.4
Current liabilities before client fund
obligations
1,440.4
1,511.4
Client fund obligations
3,868.7
4,294.0
Total current liabilities
5,309.1
5,805.4
Accrued income taxes
102.6
83.0
Deferred income taxes
86.0
112.1
Long-term borrowings, net of debt issuance
costs
798.6
798.2
Operating lease liabilities
49.0
57.3
Other long-term liabilities
236.8
197.2
Total liabilities
6,582.1
7,053.2
STOCKHOLDERS’ EQUITY
Common stock, $0.01 par value; Authorized:
600.0 shares; Issued and outstanding: 360.1 shares as of May 31,
2024 and 360.5 shares as of May 31, 2023
3.6
3.6
Additional paid-in capital
1,729.5
1,626.4
Retained earnings
2,213.0
2,023.1
Accumulated other comprehensive loss
(145.1
)
(159.9
)
Total stockholders’ equity
3,801.0
3,493.2
Total liabilities and stockholders’
equity
$
10,383.1
$
10,546.4
PAYCHEX, INC.
CONSOLIDATED STATEMENTS OF
CASH FLOWS (Unaudited)
(In millions)
For the twelve months
ended
May 31,
2024
2023 (1)
OPERATING ACTIVITIES
Net income
$
1,690.4
$
1,557.3
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization
176.5
176.6
Amortization of premiums and discounts on
available-for-sale securities, net
(7.0
)
18.2
Amortization of deferred contract
costs
231.7
219.1
Stock-based compensation costs
61.1
62.6
Benefit from deferred income taxes
(29.8
)
(44.0
)
Provision for allowance for credit
losses
19.8
17.7
Net realized losses on sales of
available-for-sale securities
2.6
9.8
Net realized losses on disposal of
assets
32.8
1.3
Changes in operating assets and
liabilities:
Interest receivable
1.1
(2.1
)
Accounts receivable and PEO unbilled
receivables, net
113.0
(135.7
)
Prepaid expenses and other current
assets
(25.2
)
(17.8
)
Accounts payable and other current
liabilities
(127.0
)
86.3
Deferred costs
(244.9
)
(269.4
)
Net change in other long-term assets and
liabilities
6.1
30.6
Net change in operating lease right-of-use
assets and liabilities
(3.5
)
(4.3
)
Net cash provided by operating
activities
1,897.7
1,706.2
INVESTING ACTIVITIES
Purchases of available-for-sale
securities
(6,868.5
)
(14,585.3
)
Proceeds from sales and maturities of
available-for-sale securities
7,161.2
14,943.2
Net change in purchased receivables
(153.8
)
(6.8
)
Purchases of property and equipment
(161.4
)
(143.0
)
Proceeds from the sale of property and
equipment
—
16.7
Acquisition of businesses, net of cash
acquired
(208.3
)
(2.7
)
Purchases of other assets
(30.1
)
(10.4
)
Net cash (used in)/provided by
investing activities
(260.9
)
211.7
FINANCING ACTIVITIES
Net change in client fund obligations
(425.3
)
474.8
Net proceeds from short-term
borrowings
9.0
2.0
Dividends paid
(1,315.3
)
(1,175.0
)
Repurchases of common shares
(169.2
)
—
Contingent consideration paid for
acquisitions
—
(2.8
)
Activity related to equity-based plans
26.1
(10.4
)
Net cash used in financing
activities
(1,874.7
)
(711.4
)
Net change in cash, restricted cash,
and equivalents
(237.9
)
1,206.5
Cash, restricted cash, and equivalents,
beginning of fiscal year
2,134.9
928.4
Cash, restricted cash, and equivalents,
end of fiscal year
$
1,897.0
$
2,134.9
Reconciliation of cash, restricted cash
and equivalents
Cash and cash equivalents
$
1,468.9
$
1,222.0
Restricted cash
47.8
49.8
Restricted cash and restricted cash
equivalents included in funds held for clients
380.3
863.1
Total cash, restricted cash, and
equivalents
$
1,897.0
$
2,134.9
(1) The consolidated statement of
cash flows for the twelve months ended May 31, 2023 includes a
revision to previously reported amounts related to the presentation
of cash flows associated with short-term receivables purchased from
the Company’s clients under non-recourse arrangements, net of
funding reserves. The revision increased net cash provided by
operating activities and decreased net cash provided by investing
activities by $6.8 million each.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20240626010114/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
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