01—Abstract
Summary
Summary of the 10-K filed July 15, 2022. Cited figures are marked; the original filing is the authoritative source.
Paychex, Inc. reported fiscal 2022 (year ended May 31, 2022) results that grew across the board.
Total revenue was $4,611.7 milliona, up 14% from $4,056.8 million in fiscal 2021, driven by Management Solutions revenue of $3,442.7 million and PEO and Insurance Solutions revenue of $1,111.3 million, each up 14%. Operating income rose 26% to $1,840.0 million, and net income increased 27% to $1,392.8 million, or $3.84 diluted earnings per share. Adjusted diluted EPS, a non-GAAP measure, was $3.77.
The company stated its client base exceeded 730,000 payroll and PEO clients, with client retention of approximately 84%. Cash flow from operations was $1,505.5 millionb, and dividends paid totaled $999.6 million, or about 72% of net income. Cash, restricted cash and total corporate investments totaled $1.3 billion, and total borrowings were $806.4 million, including $800.0 million of Senior Notes.
The company also disclosed a $400.0 millionc share repurchase program authorized in July 2021 that expires January 31, 2024. Unrealized losses on available-for-sale securities of $136.3 million reflect rising interest rates, and the filing notes a $153.7 million net unrealized loss as of July 13, 2022.
The filing also highlights ongoing risks, including cybersecurity and data privacy exposure, co-employment liabilities within the PEO business, rising health and workers' compensation costs, inflation, and the continuing effects of COVID-19. PricewaterhouseCoopers LLP issued an unqualified opinion on the financial statements and on internal control over financial reporting, and management concluded that internal control was effective as of May 31, 2022.
02—Key points
Key Highlights
- Total revenue rose 14% to $4,611.7 million, with Management Solutions at $3,442.7 million and PEO and Insurance Solutions at $1,111.3 million.
- Operating income increased 26% to $1,840.0 million, and the operating margin rose to 39.9% from 36.0%.
- Net income increased 27% to $1,392.8 million, and diluted EPS was $3.84 compared with $3.03 in fiscal 2021.
- Cash flow from operations was $1,505.5 million, and dividends paid totaled $999.6 million, or about 72% of net income.
- Client retention was approximately 84% of the beginning client base, and the company served more than 730,000 payroll and PEO clients.
- A new $400.0 million share repurchase program was authorized in July 2021 and expires January 31, 2024; 1.2 million shares were repurchased in fiscal 2022.
- Available-for-sale securities carried a net unrealized loss of $136.3 million as of May 31, 2022, versus a $79.3 million gain a year earlier.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2022, Paychex kept $0.31.
- Revenue$4.55B100.0%
- Cost of revenue−$1.36B29.8%
- Gross profit$3.20B70.2%
- Operating costs−$1.36B29.8%
- Operating income$1.84B40.4%
- Interest, other & tax−$447.2M9.8%
- Net income$1.39B30.6%
Where FY2022 revenue went
$4.55B- SG&A: $1.42B, 31% of revenue
- Net income: $1.39B, 31% of revenue
- Cost of revenue: $1.36B, 30% of revenue
- Interest, other & tax: $447.2M, 9.8% of revenue
Kept 31% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2022filed July 15, 2022Financial Statements
FY2022 against FY2021
| Line item | FY2022FY2021 | Change |
|---|---|---|
| Revenue | $4.55B$4.00B | +13.9% |
| Cost of Revenue | $1.36B$1.27B | +6.7% |
| Gross Profit | $3.20B$2.73B | +17.3% |
| SG&A Expenses | $1.42B$1.32B | +6.8% |
| Operating Expenses | $2.77B$2.60B | +6.8% |
| Operating Income | $1.84B$1.46B | +26.0% |
| Interest Expense | $36.60M$35.80M | +2.2% |
| Net Income | $1.39B$1.10B | +26.9% |
| EPS (Basic) | $3.86$3.05 | +26.6% |
| EPS (Diluted) | $3.84$3.03 | +26.7% |
| Shares Outstanding (Basic) | 360.60M359.90M | +0.2% |
| Shares Outstanding (Diluted) | 363.10M362.10M | +0.3% |
05—Questions
Frequently Asked Questions
How did Paychex perform financially in fiscal 2022?
Total revenue increased 14% to $4,611.7 million, operating income rose 26% to $1,840.0 million, and net income grew 27% to $1,392.8 million. Diluted EPS was $3.84, up from $3.03 in fiscal 2021.
What drove revenue growth?
The filing attributes Management Solutions growth to payroll client base growth and product penetration, higher revenue per client from higher employment levels and price realization, and expansion of HCM ancillary services. PEO and Insurance Solutions growth reflected growth in average worksite employees, higher average wages per worksite employee, and higher PEO health insurance and state unemployment insurance revenue.
How much cash is the company returning to shareholders?
Dividends paid were $999.6 million in fiscal 2022, up from $908.7 million, with the annual dividend rising to $2.77 per share from $2.52. The company also repurchased 1.2 million shares for $145.2 million during the year.
What are the main risks identified in the filing?
Key risks include cyberattacks and data privacy breaches, co-employment liabilities in the PEO business, changes in health insurance and workers' compensation costs, client nonpayment of funds the company advances on their behalf, debt covenant compliance, changes in regulations that affect interest income on client funds, inflation, and the ongoing effects of COVID-19.
What is the company's debt position?
Total borrowings were $806.4 million as of May 31, 2022, consisting primarily of $800.0 million in unsecured Senior Notes with fixed rates of 4.07% (Series A, due March 2026) and 4.25% (Series B, due March 2029). The company had approximately $2.0 billion available under its credit facilities.
06—Continue