01—Abstract
Summary
Summary of the 10-K filed July 15, 2011. Cited figures are marked; the original filing is the authoritative source.
Paychex, Inc. (PAYX) reported fiscal 2011 (year ended May 31, 2011) total revenue of $2,084.3 milliona, up 4% from $2,000.8 million in fiscal 2010, and net income of $515.3 million, or $1.42 diluted earnings per share, up 8%.
Service revenue rose 5% to $2,036.2 millionb, led by Human Resource Services revenue, which increased 10% to $597.4 million, while payroll service revenue increased 2% to $1.4 billion. Interest on funds held for clients fell 13% to $48.1 million as average interest rates earned declined to 1.3% from 1.5%. Operating income rose 8% to $786.4 million, and operating income net of certain items, a non-GAAP measure, rose 7% to $738.3 million.
Fiscal 2010 results included an $18.7 millionc litigation reserve charge. Client count grew to approximately 564,000 as of May 31, 2011, up 5.2% from about 536,000, though the company said excluding 33,000 SurePayroll clients the base would have declined 0.9%. Client retention improved to approximately 79%, and checks per client increased 2.1%.
Management attributed modest revenue growth to flat new sales units, largely due to lack of growth in new business starts. The company acquired SurePayroll, Inc. for $114.9 milliond and ePlan Services, Inc. for $15.2 million, both described as not significant to consolidated financial statements. The balance sheet remained conservative, with cash and total corporate investments of $671.3 million, no debt, and stockholders' equity of $1,496.2 million.
Cash dividends of $1.24 per share were paid, totaling $448.8 million, or 87% of net income. For fiscal 2012, guidance projects total service revenue growth of 7% to 9%, net income growth of 5% to 7%, and an effective tax rate of approximately 35%.
02—Key points
Key Highlights
- Total revenue rose 4% to $2,084.3 million; net income rose 8% to $515.3 million and diluted EPS rose 8% to $1.42.
- Human Resource Services revenue increased 10% to $597.4 million, while payroll service revenue increased 2% to $1.4 billion.
- Operating income increased 8% to $786.4 million; operating income net of certain items increased 7% to $738.3 million.
- Client base reached approximately 564,000 (up 5.2%, or down 0.9% excluding SurePayroll), with client retention improving to approximately 79%.
- Interest on funds held for clients declined 13% to $48.1 million as the average combined portfolio yield fell to 1.3% from 1.5%.
- Cash flow from operations increased 17% to $715.3 million; dividends of $448.8 million equaled 87% of net income.
- The company had cash and total corporate investments of $671.3 million and no debt as of May 31, 2011; fiscal 2012 guidance projects total service revenue growth of 7% to 9%.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2011filed July 15, 2011Financial Statements
FY2011 against FY2010
| Line item | FY2011FY2010 | Change |
|---|---|---|
| Revenue | $2.08B$2.00B | +4.2% |
| SG&A Expenses | $646.40M$622.40M | +3.9% |
| Operating Expenses | $1.30B$1.28B | +1.7% |
| Operating Income | $786.40M$724.80M | +8.5% |
| Net Income | $515.30M$477.00M | +8.0% |
| EPS (Basic) | $1.42$1.32 | +7.6% |
| EPS (Diluted) | $1.42$1.32 | +7.6% |
| Shares Outstanding (Basic) | 361.80M361.40M | +0.1% |
| Shares Outstanding (Diluted) | 362.40M361.70M | +0.2% |
05—Questions
Frequently Asked Questions
What drove revenue growth in fiscal 2011?
Growth came mainly from Human Resource Services, which rose 10% to $597.4 million, and payroll service revenue, which rose 2% to $1.4 billion. Payroll gains were supported by a 2.1% increase in checks per client and higher revenue per check, partly offset by a 0.9% decline in the client base excluding SurePayroll.
How did low interest rates affect results?
Interest on funds held for clients fell 13% to $48.1 million, and the combined average rate on funds held for clients and corporate investments dropped to 1.3% from 1.5%. The Federal Funds rate remained at a range of zero to 0.25%, and the company expects the average return to be 1.2% in fiscal 2012.
What acquisitions did Paychex make and what do they contribute?
Paychex acquired SurePayroll, Inc. on February 8, 2011 for $114.9 million, net of cash acquired, adding an online payroll product and mobile application for small businesses. It also acquired ePlan Services, Inc. on May 3, 2011 for $15.2 million, net of cash acquired, expanding retirement services to financial advisers. The company stated neither acquisition was significant to its consolidated financial statements, and the SurePayroll acquisition was dilutive to fiscal 2011 by less than $0.01 per share.
What is the company's capital return and balance sheet position?
Dividends of $1.24 per share were paid for the year, totaling $448.8 million, or 87% of net income. As of May 31, 2011, the company held cash and total corporate investments of $671.3 million, had no debt, and reported stockholders' equity of $1,496.2 million. It also had four uncommitted short-term lines of credit totaling $900 million, none of which were drawn.
What is the outlook for fiscal 2012?
Guidance projects total service revenue growth of 7% to 9%, net income growth of 5% to 7%, and operating income net of certain items as a percentage of service revenue of 35% to 36%. Capital expenditures are expected to be $90 million to $95 million, and the effective income tax rate is expected to be approximately 35%.
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