01—Abstract
Summary
Summary of the 10-K filed July 11, 2024. Cited figures are marked; the original filing is the authoritative source.
Paychex, Inc. (NASDAQ: PAYX) reports its annual results for the fiscal year ended May 31, 2024.
The company describes itself as a human capital management (HCM) provider of HR, employee benefits, insurance, and payroll services for small- to medium-sized businesses in the U.S. and parts of Europe, serving greater than 745,000 clients as of May 31, 2024. Total revenue rose to $5,278.3 milliona from $5,007.1 million, operating income increased to $2,174.1 million from $2,033.1 million, and net income reached $1,690.4 million, or $4.67 diluted earnings per share, compared with $4.30 in fiscal 2023. Management also cites one-time cost optimization initiatives of $39.5 million in the fourth quarter, which lifted adjusted diluted earnings per share to $4.72 on a non-GAAP basis.
The filing shows continued cash generation and capital returns. Net cash provided by operating activities was $1,897.7 millionb, and dividends paid totaled $1,315.3 million, or $3.65 per share. The company repurchased 1.5 million shares for $169.2 million during fiscal 2024 and had $400.0 million of authorization remaining under its program expiring May 31, 2027.
Liquidity included $1.6 billionc of cash, restricted cash and corporate investments, along with $2.0 billion of unused credit facility capacity and $800.0 million of Senior Notes outstanding. Key risks highlighted include cybersecurity and data privacy exposure, co-employment and workers' compensation cost risks in the PEO business, client fund and interest income sensitivity to interest rates and tax remittance rules, and covenant compliance under its debt agreements. The company also completed its acquisition of Alterna Capital Solutions, LLC on July 31, 2023, for a base price of $95.1 million plus debt settlement of $128.9 million, net of cash acquired.
02—Key points
Key Highlights
- Total revenue of $5,278.3 million for fiscal 2024, up from $5,007.1 million in fiscal 2023.
- Operating income of $2,174.1 million, up from $2,033.1 million; operating margin of 41.2% versus 40.6% in fiscal 2023.
- Net income of $1,690.4 million and diluted EPS of $4.67, versus $4.30 in fiscal 2023; adjusted diluted EPS of $4.72 excludes $39.5 million of one-time cost optimization costs.
- Net cash provided by operating activities of $1,897.7 million for fiscal 2024.
- Dividends paid of $1,315.3 million ($3.65 per share) and share repurchases of $169.2 million (1.5 million shares), with $400.0 million of authorization remaining through May 31, 2027.
- Approximately $2.0 billion of unused credit facility capacity and $800.0 million of Senior Notes outstanding as of May 31, 2024.
- Acquisition of Alterna Capital Solutions, LLC completed July 31, 2023, adding receivables funding for small businesses.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2024, Paychex kept $0.32.
- Revenue$5.28B100.0%
- Cost of revenue−$1.48B28.0%
- Gross profit$3.80B72.0%
- Operating costs−$1.62B30.8%
- Operating income$2.17B41.2%
- Interest, other & tax−$483.7M9.2%
- Net income$1.69B32.0%
Where FY2024 revenue went
$5.28B- Net income: $1.69B, 32% of revenue
- SG&A: $1.62B, 31% of revenue
- Cost of revenue: $1.48B, 28% of revenue
- Interest, other & tax: $483.7M, 9.2% of revenue
Kept 32% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2024filed July 11, 2024Financial Statements
FY2024 against FY2023
| Line item | FY2024FY2023 | Change |
|---|---|---|
| Revenue | $5.28B$5.01B | +5.4% |
| Cost of Revenue | $1.48B$1.45B | +1.8% |
| Gross Profit | $3.80B$3.55B | +6.9% |
| SG&A Expenses | $1.62B$1.52B | +6.8% |
| Operating Expenses | $3.10B$2.97B | +4.4% |
| Operating Income | $2.17B$2.03B | +6.9% |
| Interest Expense | $37.30M$36.70M | +1.6% |
| Net Income | $1.69B$1.56B | +8.5% |
| EPS (Basic) | $4.69$4.32 | +8.6% |
| EPS (Diluted) | $4.67$4.30 | +8.6% |
| Shares Outstanding (Basic) | 360.30M360.40M | 0.0% |
| Shares Outstanding (Diluted) | 362.10M362.30M | −0.1% |
05—Questions
Frequently Asked Questions
How did Paychex perform financially in fiscal 2024?
Total revenue rose to $5,278.3 million from $5,007.1 million, and net income increased to $1,690.4 million from $1,557.3 million. Diluted EPS was $4.67 compared with $4.30 in fiscal 2023. Management Solutions revenue was $3,866.4 million and PEO and Insurance Solutions revenue was $1,265.6 million, while interest on funds held for clients was $146.3 million.
What drove the growth in interest on funds held for clients?
The filing attributes the increase to higher average interest rates, higher average investment balances, and lower realized losses on investment sales. Interest on funds held for clients was $146.3 million, versus $99.8 million in fiscal 2023, and the average interest rate earned on combined portfolios was 3.8% compared with 2.7%.
What are the main risks flagged for investors?
The filing highlights cyberattacks and data privacy breaches, co-employment and workers' compensation cost exposure in the PEO business, sensitivity of interest income to interest rates and tax remittance rules, the risk of client nonpayment, and compliance with debt covenants, which include a maximum leverage ratio of 3.5:1.0 and a minimum interest coverage ratio of 2.0:1.0.
What were the one-time cost optimization initiatives?
During the fourth quarter of fiscal 2024, the company pursued cost optimization, including further reductions to its geographic footprint, reprioritization of certain technology investments, and headcount optimization. These produced $39.5 million of one-time costs, and the company expects ongoing savings in rent, facilities maintenance, and wage-related expenses.
How much liquidity does Paychex have and how is it used?
As of May 31, 2024, cash, restricted cash, and total corporate investments totaled $1.6 billion, and unused capacity under unsecured credit facilities was $2.0 billion. Short-term borrowings were $18.7 million and long-term borrowings were $800.0 million. The company uses short-term borrowings mainly to settle client fund obligations rather than liquidate its long-term investment portfolio.
06—Continue