01—Abstract
Summary
Summary of the 10-K filed July 20, 2012. Cited figures are marked; the original filing is the authoritative source.
Paychex, Inc. (PAYX) reported fiscal 2012 (year ended May 31, 2012) results that reflect sustained growth.
Total revenue rose 7% to $2.2 billiona, with service revenue of $2,186.2 million, including payroll service revenue of $1.51 billion (up 5%) and Human Resource Services revenue of $676.2 million (up 13%). Operating income increased 9% to $853.9 million, and net income rose 6% to $548.0 million, or $1.51 per diluted share. Operating income, net of certain items (a non-GAAP measure that excludes interest on funds held for clients), increased 10% to $810.3 million.
The company remains debt-free and held cash and total corporate investments of $790.0 millionb as of May 31, 2012. Management described new business formation as challenged and revenue growth as moderate, while the interest rate environment continued to weigh on results: interest on funds held for clients fell 9% to $43.6 million, and the combined portfolio earned an average return of 1.1%, down from 1.3% in fiscal 2011. Operating cash flow was $706.6 million, and dividends paid totaled $460.5 million, or 84% of net income.
For fiscal 2013, the company's guidance calls for total service revenue growth of 5%c to 6%, net income growth of 5% to 7%, and operating income, net of certain items, as a percent of service revenue of approximately 37%. Client count reached approximately 567,000 as of May 31, 2012, with client retention of approximately 80%.
02—Key points
Key Highlights
- Total revenue increased 7% to $2.2 billion ($2,229.8 million) in fiscal 2012, and service revenue grew 7% to $2,186.2 million.
- Net income rose 6% to $548.0 million, and diluted earnings per share rose 6% to $1.51.
- Operating income increased 9% to $853.9 million; operating income net of certain items rose 10% to $810.3 million (non-GAAP).
- Human Resource Services revenue increased 13% to $676.2 million, led by growth in ancillary services such as Paychex HR Solutions and insurance services.
- Interest on funds held for clients declined 9% to $43.6 million as the average combined portfolio yield fell to 1.1% from 1.3%, and the Federal Funds rate stayed at zero to 0.25%.
- The company had no debt and $790.0 million of cash and total corporate investments as of May 31, 2012, with dividends of $460.5 million paid, equal to 84% of net income.
- Fiscal 2013 guidance projects total service revenue growth of 5% to 6% and net income growth of 5% to 7%.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2012filed July 20, 2012Financial Statements
FY2012 against FY2011
| Line item | FY2012FY2011 | Change |
|---|---|---|
| Revenue | $2.23B$2.08B | +7.0% |
| SG&A Expenses | $705.80M$646.40M | +9.2% |
| Operating Expenses | $1.38B$1.30B | +6.0% |
| Operating Income | $853.90M$786.40M | +8.6% |
| Net Income | $548.00M$515.30M | +6.3% |
| EPS (Basic) | $1.51$1.42 | +6.3% |
| EPS (Diluted) | $1.51$1.42 | +6.3% |
| Shares Outstanding (Basic) | 362.40M361.80M | +0.2% |
| Shares Outstanding (Diluted) | 363.00M362.40M | +0.2% |
05—Questions
Frequently Asked Questions
How did Paychex perform financially in fiscal 2012?
Paychex grew total revenue 7% to $2,229.8 million and net income 6% to $548.0 million, or $1.51 per diluted share. Operating income rose 9% to $853.9 million, with payroll service revenue up 5% and Human Resource Services revenue up 13%.
What drove the growth in Human Resource Services revenue?
The filing attributes growth to favorable trends in checks per payroll, price increases, and growth in clients and client employees under Paychex HR Solutions, along with insurance services growth, SaaS products serving Major Market Services clients, and retirement services. Acquisitions, including ePlan in May 2011, also contributed.
How are low interest rates affecting the company?
Interest on funds held for clients decreased 9% to $43.6 million in fiscal 2012 because the average interest rate earned fell, partially offset by higher average balances. The company expects the combined portfolio return to remain at 1.1% in fiscal 2013.
What is the company's guidance for fiscal 2013?
Management guides to total service revenue growth of 5% to 6%, net income growth of 5% to 7%, and operating income net of certain items at approximately 37% of service revenue. The effective tax rate is expected to be about 36%, and purchases of property and equipment are expected to be $95 million to $100 million.
What is the company's financial position and dividend policy?
Paychex had no debt and $790.0 million of cash and total corporate investments as of May 31, 2012. It paid dividends of $1.27 per share for fiscal 2012, totaling $460.5 million, and the quarterly dividend was raised 3% to $0.32 per share in October 2011.
06—Continue