01—Abstract
Summary
Summary of the 10-K filed July 21, 2017. Cited figures are marked; the original filing is the authoritative source.
Paychex, Inc. reported fiscal 2017 (year ended May 31, 2017) results showing continued growth.
Total revenue rose 7% to $3.2 billiona ($3,151.3 million), operating income increased 8% to $1.2 billion ($1,239.6 million), and net income increased 8% to $817.3 million, or $2.25 per diluted share. The company serviced approximately 605,000 payroll clients, flat versus a year earlier, and client retention was approximately 81% of the beginning client base, down slightly from prior near-record levels. Growth was driven mainly by Human Resource Services (HRS) revenue, which rose 12% to $1.3 billion, while payroll service revenue grew 3% to $1.8 billion on higher revenue per check from price increases.
The balance sheet remained conservative, with cash and total corporate investments of $777.4 millionb and no debt. Operating cash flow was $960.4 million, down from $1,018.2 million in fiscal 2016, mainly due to changes in operating assets and liabilities. Dividends paid totaled $662.3 million, or 81% of net income.
The company repurchased 2.9 million shares for $166.2 millionc during the year and had $243.5 million remaining under its July 2016 repurchase program. Management's fiscal 2018 guidance calls for payroll service revenue growth of 1% to 2%, HRS revenue growth of 8% to 10%, total revenue growth of approximately 5%, and diluted EPS growth of 5% to 6%.
The company also raised its quarterly dividend to $0.50d per share from $0.46, announced July 13, 2017. Key risks highlighted include potential repeal or modification of the Affordable Care Act, which could affect revenue from its employer shared responsibility service, along with cybersecurity, co-employment liability in its PEO business, and interest income sensitivity to rates.
02—Key points
Key Highlights
- Total revenue increased 7% to $3.2 billion; service revenue rose 7% to $3.1 billion.
- HRS revenue increased 12% to $1.3 billion, while payroll service revenue increased 3% to $1.8 billion.
- Net income increased 8% to $817.3 million; diluted EPS rose 8% to $2.25.
- Client base was flat at approximately 605,000 payroll clients; client retention was approximately 81%, down slightly from prior years.
- Balance sheet shows $777.4 million in cash and corporate investments and no debt; dividends paid were $662.3 million, or 81% of net income.
- Fiscal 2018 guidance: total revenue growth of about 5%, and diluted EPS growth of 5% to 6%.
- Possible repeal or modification of the Affordable Care Act could reduce revenue from the company's ESR service.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2017filed July 21, 2017Financial Statements
FY2017 against FY2016
| Line item | FY2017FY2016 | Change |
|---|---|---|
| Revenue | $3.15B$2.95B | +6.8% |
| SG&A Expenses | $979.70M$948.20M | +3.3% |
| Operating Expenses | $1.90B$1.81B | +5.2% |
| Operating Income | $1.25B$1.15B | +9.4% |
| Interest Expense | $2.50M$1.10M | +127.3% |
| Net Income | $826.30M$756.80M | +9.2% |
| EPS (Basic) | $2.30$2.10 | +9.5% |
| EPS (Diluted) | $2.28$2.09 | +9.1% |
| Shares Outstanding (Basic) | 359.80M360.70M | −0.2% |
| Shares Outstanding (Diluted) | 362.60M362.50M | 0.0% |
05—Questions
Frequently Asked Questions
How did Paychex perform financially in fiscal 2017?
Total revenue rose 7% to $3,151.3 million, operating income increased 8% to $1,239.6 million, and net income increased 8% to $817.3 million. Diluted earnings per share were $2.25, up from $2.09 in fiscal 2016.
What drove revenue growth?
Human Resource Services revenue grew 12% to $1.3 billion, driven by growth in client base across major HCM services. Payroll service revenue grew 3% to $1.8 billion, mainly from higher revenue per check due to price increases, net of discounts.
What is the company's capital position and shareholder return?
Paychex reported cash and total corporate investments of $777.4 million and no debt as of May 31, 2017. It paid $662.3 million in dividends, equal to 81% of net income, and repurchased 2.9 million shares for $166.2 million. The company announced a quarterly dividend increase to $0.50 from $0.46 in July 2017.
What is the outlook for fiscal 2018?
Management expects payroll service revenue to grow 1% to 2%, HRS revenue to grow 8% to 10%, and total revenue to grow approximately 5%. Operating income as a percent of total revenue is expected to approximate 40%, and diluted EPS is expected to increase 5% to 6%.
What are the main risks highlighted in the filing?
Key risks include changes to or repeal of the Affordable Care Act, which could reduce revenue from the ESR service; cyber-attacks and data security breaches; co-employment liability in the PEO business; and changes in interest rates that affect income earned on client funds.
06—Continue