01—Abstract
Summary
Summary of the 10-K filed July 14, 2023. Cited figures are marked; the original filing is the authoritative source.
Paychex, Inc. (NASDAQ: PAYX) reports results for fiscal year ended May 31, 2023.
Total revenue rose to $5.007 billiona from $4.612 billion, and total service revenue was $4.907 billion, up 8%. Operating income was $2.033 billion, up 10%, with operating margin of 40.6% versus 39.9% a year earlier. Net income was $1.557 billion, up 12%, and diluted EPS was $4.30 versus $3.84.
Adjusted diluted EPS, a non-GAAP measure, was $4.27b. Management Solutions revenue was $3.7 billion (up 8%) and PEO and Insurance Solutions revenue was $1.2 billion (up 6%). Interest on funds held for clients grew 73% to $99.8 million on higher average interest rates.
The company serves approximately 740,000 payroll and PEO clients as of May 31, 2023, with client retention in the range of 82% to 83%. Cash flow from operations was $1.7 billionc. Dividends paid totaled $1.175 billion, or $3.26 per share declared, versus $2.77 a year earlier.
No shares were repurchased in fiscal 2023, and $327.1 milliond remains available under the repurchase program, which expires January 31, 2024. Total short-term and long-term borrowings were $808.4 million, and the company had approximately $1.99 billion of available lines of credit.
Key risks flagged in the filing include exposure to client fund shortfalls on PEO and payroll payments, interest-rate and unrealized-loss exposure on the AFS portfolio (net unrealized losses of $175.3 million as of May 31, 2023), covenant limits on the Senior Notes, cybersecurity and data privacy, and pressure from macroeconomic conditions and inflation on small and medium-sized clients. PricewaterhouseCoopers issued an unqualified opinion, and management reported effective internal control over financial reporting.
02—Key points
Key Highlights
- Total revenue of $5.007 billion, up 9% from $4.612 billion in fiscal 2022.
- Net income of $1.557 billion, up 12%, and diluted EPS of $4.30 versus $3.84.
- Operating income of $2.033 billion, up 10%, with operating margin of 40.6% versus 39.9%.
- Management Solutions revenue of $3.7 billion (up 8%) and PEO and Insurance Solutions revenue of $1.2 billion (up 6%).
- Interest on funds held for clients rose 73% to $99.8 million, driven by higher average interest rates.
- Dividends paid of $1.175 billion; declared dividend per share rose to $3.26 from $2.77, and no shares were repurchased in fiscal 2023.
- Approximately 740,000 payroll and PEO clients as of May 31, 2023, with client retention of 82% to 83%.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2023, Paychex kept $0.31.
- Revenue$5.01B100.0%
- Cost of revenue−$1.45B29.0%
- Gross profit$3.55B71.0%
- Operating costs−$1.52B30.4%
- Operating income$2.03B40.6%
- Interest, other & tax−$475.8M9.5%
- Net income$1.56B31.1%
Where FY2023 revenue went
$5.01B- Net income: $1.56B, 31% of revenue
- SG&A: $1.52B, 30% of revenue
- Cost of revenue: $1.45B, 29% of revenue
- Interest, other & tax: $475.8M, 9.5% of revenue
Kept 31% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2023filed July 14, 2023Financial Statements
FY2023 against FY2022
| Line item | FY2023FY2022 | Change |
|---|---|---|
| Revenue | $5.01B$4.55B | +9.9% |
| Cost of Revenue | $1.45B$1.36B | +7.1% |
| Gross Profit | $3.55B$3.20B | +11.1% |
| SG&A Expenses | $1.52B$1.42B | +7.5% |
| Operating Expenses | $2.97B$2.77B | +7.3% |
| Operating Income | $2.03B$1.84B | +10.5% |
| Interest Expense | $36.70M$36.60M | +0.3% |
| Net Income | $1.56B$1.39B | +11.8% |
| EPS (Basic) | $4.32$3.86 | +11.9% |
| EPS (Diluted) | $4.30$3.84 | +12.0% |
| Shares Outstanding (Basic) | 360.40M360.60M | −0.1% |
| Shares Outstanding (Diluted) | 362.30M363.10M | −0.2% |
05—Questions
Frequently Asked Questions
How did Paychex perform financially in fiscal 2023?
Total revenue was $5.007 billion, up 9%, and net income was $1.557 billion, up 12%. Diluted EPS was $4.30, up from $3.84. Operating income reached $2.033 billion, an increase of 10%, and operating margin improved to 40.6% from 39.9%.
What drove revenue growth?
Management Solutions revenue grew 8% to $3.7 billion on more clients and worksite employees, higher revenue per client from pricing and product attachment, and growth in HCM ancillary services. PEO and Insurance Solutions revenue grew 6% to $1.2 billion. Interest on funds held for clients rose 73% to $99.8 million on higher average interest rates.
How much did Paychex return to shareholders?
Dividends paid totaled $1.175 billion, and the declared annual dividend rose to $3.26 per share from $2.77. No shares were repurchased during fiscal 2023, and $327.1 million remains available under the repurchase program that expires January 31, 2024.
What are the main risks highlighted in the filing?
The filing highlights cybersecurity and data privacy risks, the possibility that clients cannot cover payments Paychex makes on their behalf, co-employment liabilities in the PEO business, covenant limits under the Senior Notes, and macroeconomic pressure from inflation and banking volatility on small and medium-sized clients. Interest-rate changes also affect the value of the available-for-sale portfolio, which had net unrealized losses of $175.3 million as of May 31, 2023.
What is the company's debt and liquidity position?
Total short-term and long-term borrowings were $808.4 million as of May 31, 2023. Long-term Senior Notes total $800.0 million, with Series A at 4.07% due March 2026 and Series B at 4.25% due March 2029. Available credit lines totaled approximately $1.99 billion, and cash flow from operations was $1.7 billion.
06—Continue