01—Abstract
Summary
Summary of the 10-K filed July 22, 2013. Cited figures are marked; the original filing is the authoritative source.
Paychex, Inc. reported fiscal 2013 (year ended May 31, 2013) results showing continued growth.
Total revenue was $2.33 billiona, up from $2.23 billion in fiscal 2012, and net income was $569.0 million, or $1.56 per diluted share, compared with $548.0 million and $1.51 in fiscal 2012. Service revenue reached $2.29 billion, driven by payroll service revenue of $1.54 billion and Human Resource Services (HRS) revenue of $746.0 million, which grew 10%. Interest on funds held for clients declined to $41.0 million amid low interest rates, with the combined portfolio earning an average return of 1.0% for the year.
Fiscal 2013 results were reduced by approximately $0.04b per diluted share from the settlement of a state income tax matter. The company ended the year with cash and total corporate investments of $874.6 million and no debt. Operating cash flow was $675.3 million, and dividends paid totaled $476.7 million, or 84% of net income.
Client count reached approximately 570,000, and client retention exceeded 81%c of the beginning client base, a record level. The company reported 12,400 employees and described its Paychex Next Generation platform and mobile offerings as key to future growth. Management's fiscal 2014 guidance projects total service revenue growth of 5% to 6% and net income growth of 8% to 9%.
The company also entered a $500 milliond unsecured five-year credit facility in June 2013. Management believes resolution of pending legal matters will not have a material adverse effect, and the company disclosed that its PEO business, a co-employment model, carries exposure to health insurance and workers' compensation cost trends.
02—Key points
Key Highlights
- Total revenue rose 4% to $2.33 billion; service revenue rose 5% to $2.29 billion in fiscal 2013.
- Net income increased 4% to $569.0 million, and diluted EPS increased 3% to $1.56, including a roughly $0.04 per share reduction from a state income tax settlement.
- HRS revenue grew 10% to $746.0 million, while payroll service revenue grew 2% to $1.5 billion.
- Interest on funds held for clients decreased 6% to $41.0 million, reflecting the Federal Funds rate range of zero to 0.25%.
- The company had no debt and $874.6 million in cash and total corporate investments as of May 31, 2013.
- Dividends of $476.7 million were paid, equal to 84% of net income, with the quarterly dividend raised to $0.33 per share in October 2012.
- Fiscal 2014 guidance calls for total service revenue growth of 5% to 6% and net income growth of 8% to 9%.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2013filed July 22, 2013Financial Statements
FY2013 against FY2012
| Line item | FY2013FY2012 | Change |
|---|---|---|
| Revenue | $2.33B$2.23B | +4.3% |
| SG&A Expenses | $750.10M$705.80M | +6.3% |
| Operating Expenses | $1.42B$1.38B | +3.3% |
| Operating Income | $904.80M$853.90M | +6.0% |
| Net Income | $569.00M$548.00M | +3.8% |
| EPS (Basic) | $1.56$1.51 | +3.3% |
| EPS (Diluted) | $1.56$1.51 | +3.3% |
| Shares Outstanding (Basic) | 363.80M362.40M | +0.4% |
| Shares Outstanding (Diluted) | 364.70M363.00M | +0.5% |
05—Questions
Frequently Asked Questions
How did Paychex perform financially in fiscal 2013?
Total revenue increased 4% to $2.33 billion, operating income rose 6% to $904.8 million, and net income increased 4% to $569.0 million. Diluted earnings per share were $1.56, up 3%, after a state income tax settlement reduced EPS by approximately $0.04.
What drove revenue growth in fiscal 2013?
Payroll service revenue increased 2% to $1.5 billion, benefiting from increases in checks per payroll of 1.6% and revenue per check. Human Resource Services revenue grew 10% to $746.0 million, supported by retirement services, Paychex HR Solutions, insurance services, and eServices.
How strong is Paychex's balance sheet?
As of May 31, 2013, the company reported cash and total corporate investments of $874.6 million and no debt. Stockholders' equity was $1.77 billion. The company also has four uncommitted short-term lines of credit and a $500 million committed credit facility entered in June 2013.
What is the outlook for fiscal 2014?
Management expects payroll service revenue growth of 3% to 4%, HRS revenue growth of 9% to 10%, total service revenue growth of 5% to 6%, and net income growth of 8% to 9%. The effective income tax rate is expected to be in the range of 36% to 37%.
What risks does the filing highlight for investors?
Key risks include changes in government regulations affecting payroll tax and benefit services, the effects of health care reform, security breaches and technology disruptions, reliance on third-party service providers, co-employment liability within the PEO business, rising health insurance and workers' compensation costs, and low interest rates that reduce income earned on client funds.
06—Continue