01—Abstract
Summary
Summary of the 10-K filed July 21, 2015. Cited figures are marked; the original filing is the authoritative source.
Paychex, Inc. reported fiscal 2015 (year ended May 31, 2015) results showing continued growth across its payroll and human resource services.
Total revenue rose 9% to $2.7 billiona, with service revenue of $2,697.5 million, driven by payroll service revenue growth of 4% to $1.7 billion and HRS revenue growth of 18% to $1.0 billion. Operating income increased 7% to $1.05 billion, and net income rose 8% to $674.9 million, or $1.85 per diluted share. The company paid $551.8 million in dividends, equal to 82% of net income, and ended the year with cash and total corporate investments of $936.4 million and no debt.
Management highlighted record client retention of over 82% of the beginning-of-year client base, a client base of approximately 590,000, and growth in the Paychex HR Services and PEO business, which reached $1 billionb in HRS revenue. The company guided fiscal 2016 total service revenue growth of 7% to 8% and net income growth of 8% to 9%, and expects operating income net of certain items to be approximately 38% of service revenue. Management also noted that the minimum premium health plan within the PEO is a lower-margin product that weighed on margins, and that interest rates on high-quality instruments remain low, with the average return on combined client and corporate portfolios at 1.0%.
The filing states that management believes pending legal matters will not have a material adverse effect on financial position or results of operations, and that the company's internal control over financial reporting was effective as of May 31, 2015. Risk factors emphasize regulatory change, health care reform, technology and security breaches, and the PEO co-employment and health and workers' compensation cost exposure.
02—Key points
Key Highlights
- Total revenue increased 9% to $2,739.6 million; service revenue reached $2,697.5 million.
- Payroll service revenue rose 4% to $1,656.8 million, while HRS revenue grew 18% to $1,040.7 million.
- Operating income increased 7% to $1,053.6 million; net income rose 8% to $674.9 million, with diluted EPS of $1.85.
- Client retention reached a record level of over 82% of the beginning-of-year client base, with approximately 590,000 clients as of May 31, 2015.
- The company paid $551.8 million in dividends, representing 82% of net income, and repurchased $182.4 million of common stock during fiscal 2015 under a $350 million program.
- Balance sheet shows cash and total corporate investments of $936.4 million and no debt; stockholders' equity was $1,785.5 million.
- Fiscal 2016 guidance projects total service revenue growth of 7% to 8% and net income growth of 8% to 9%.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2015filed July 21, 2015Financial Statements
FY2015 against FY2014
| Line item | FY2015FY2014 | Change |
|---|---|---|
| Revenue | $2.74B$2.52B | +8.8% |
| SG&A Expenses | $878.00M$803.70M | +9.2% |
| Operating Expenses | $1.69B$1.54B | +9.8% |
| Operating Income | $1.05B$982.70M | +7.2% |
| Interest Expense | $700K$1.10M | −36.4% |
| Net Income | $674.90M$627.50M | +7.6% |
| EPS (Basic) | $1.86$1.72 | +8.1% |
| EPS (Diluted) | $1.85$1.71 | +8.2% |
| Shares Outstanding (Basic) | 362.90M364.50M | −0.4% |
| Shares Outstanding (Diluted) | 364.60M366.10M | −0.4% |
05—Questions
Frequently Asked Questions
What drove revenue growth in fiscal 2015?
Total service revenue increased 9%, driven by HRS revenue growth of 18% to $1.0 billion, which benefited from the PEO minimum premium health plan and strong Paychex HR Services demand, along with payroll service revenue growth of 4% from increases in revenue per check and clients.
How strong is the company's financial position?
As of May 31, 2015, Paychex reported cash and total corporate investments of $936.4 million and no debt. Total stockholders' equity was $1,785.5 million, and return on stockholders' equity was 36%.
What is the outlook for fiscal 2016?
The company guided payroll service revenue growth of 4% to 5%, HRS revenue growth of 10% to 13%, total service revenue growth of 7% to 8%, and net income growth of 8% to 9%. Operating income, net of certain items, is expected to be approximately 38% of total service revenue.
How much does the company return to shareholders?
Dividends paid totaled $551.8 million in fiscal 2015, or $1.52 per share, equal to 82% of net income. The quarterly dividend was raised to $0.38 per share from $0.35. The company also repurchased 3.9 million shares for $182.4 million during the year.
What are the main risks to the business?
The filing cites changes in government regulations affecting payroll tax and benefit services, the evolving health care reform law, technology changes, security breaches involving client data, failures of third-party service providers, and PEO co-employment liability. Changes in health insurance and workers' compensation costs and in interest rates on client funds could also affect results.
06—Continue