01—Abstract
Summary
Summary of the 10-Q filed September 28, 2023. Cited figures are marked; the original filing is the authoritative source.
Paychex, Inc. reported results for the first quarter ended August 31, 2023 (fiscal 2024 Q1).
Total revenue rose to $1,286.0 milliona from $1,206.2 million, up 7%, while total service revenue grew 5% to $1,253.3 million. Management Solutions revenue increased 6% to $955.5 million and PEO and Insurance Solutions revenue increased 5% to $297.8 million. Interest on funds held for clients rose 83% to $32.7 million, driven by higher average interest rates earned and higher average investment balances.
Operating income increased 8% to $536.3 millionb, with operating margin of 41.7% versus 41.1% in the prior year period. Net income grew 11% to $419.2 million and diluted earnings per share rose 10% to $1.16, compared with $1.05 a year earlier. Adjusted diluted earnings per share, a non-GAAP measure, was $1.14 versus $1.03.
Net cash provided by operating activities was $655.8 millionc, compared with $364.3 million in the prior year period. The company acquired Alterna Capital Solutions LLC effective July 31, 2023, for a base purchase price of $94.8 million plus immediate settlement of debt totaling $128.9 million; the filing describes the acquisition as not material to results, financial position, or cash flows. The balance sheet showed cash and cash equivalents of $1,645.9 million and total assets of $12,200.0 million at August 31, 2023, up from $10,546.4 million at May 31, 2023, largely reflecting increases in funds held for clients and client fund obligations.
Net unrealized losses on available-for-sale securities were $206.9 milliond, and the filing states that no credit impairment was recognized. No shares were repurchased during the quarter, and $327.1 million remained available under the repurchase program. The quarterly dividend increased to $0.89 per share from $0.79 per share.
02—Key points
Key Highlights
- Total revenue of $1,286.0 million, up 7% from $1,206.2 million in the prior year period.
- Operating income of $536.3 million, up 8%, with operating margin of 41.7% versus 41.1%.
- Net income of $419.2 million, up 11%; diluted EPS of $1.16 versus $1.05.
- Interest on funds held for clients increased 83% to $32.7 million on higher average rates and balances.
- Net cash provided by operating activities of $655.8 million versus $364.3 million a year earlier.
- Acquired Alterna Capital Solutions LLC effective July 31, 2023 for a base price of $94.8 million plus debt settlement of $128.9 million; not material per the filing.
- Quarterly dividend raised to $0.89 per share from $0.79; no shares repurchased in the quarter with $327.1 million remaining under the program.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q1 FY2024, Paychex kept $0.33.
- Revenue$1.29B100.0%
- Cost of revenue−$360.2M28.0%
- Gross profit$925.8M72.0%
- Operating costs−$389.5M30.3%
- Operating income$536.3M41.7%
- Interest, other & tax−$117.1M9.1%
- Net income$419.2M32.6%
04—Financials
Financial Highlights
Figures from 10-QQ1 FY2024filed September 28, 2023Financial Statements
Q1 FY2024 against Q1 FY2023
| Line item | Q1 FY2024Q1 FY2023 | Change |
|---|---|---|
| Revenue | $1.29B$1.21B | +6.6% |
| Cost of Revenue | $360.20M$351.00M | +2.6% |
| Gross Profit | $925.80M$855.20M | +8.3% |
| SG&A Expenses | $389.50M$359.60M | +8.3% |
| Operating Expenses | $749.70M$710.60M | +5.5% |
| Operating Income | $536.30M$495.60M | +8.2% |
| Interest Expense | $9.40M$9.10M | +3.3% |
| Net Income | $419.20M$379.20M | +10.5% |
| EPS (Basic) | $1.16$1.05 | +10.5% |
| EPS (Diluted) | $1.16$1.05 | +10.5% |
| Shares Outstanding (Basic) | 360.80M360.10M | +0.2% |
| Shares Outstanding (Diluted) | 362.80M362.40M | +0.1% |
05—Questions
Frequently Asked Questions
How did Paychex's revenue and profitability perform in the first quarter of fiscal 2024?
Total revenue rose 7% to $1,286.0 million, and total service revenue rose 5% to $1,253.3 million. Operating income increased 8% to $536.3 million, and net income increased 11% to $419.2 million, with diluted EPS of $1.16 compared with $1.05.
What drove growth in the Management Solutions and PEO and Insurance Solutions segments?
Management Solutions revenue increased 6% to $955.5 million, driven by growth in clients and client employees served, higher revenue per client from price realization and product penetration, and demand for ancillary services. PEO and Insurance Solutions revenue increased 5% to $297.8 million, driven by growth in average PEO worksite employees, higher state unemployment insurance revenue, and ancillary services growth.
Why did interest on funds held for clients increase so significantly?
Interest on funds held for clients rose 83% to $32.7 million, due to higher average interest rates earned and higher average investment balances. Average interest rates earned on funds held for clients were 3.2% versus 1.7% in the prior year period.
What was the impact of the Alterna Capital Solutions acquisition?
Effective July 31, 2023, a subsidiary acquired substantially all net assets of Alterna Capital Solutions LLC, which purchases customers' accounts receivable under non-recourse arrangements. The consideration comprised a $94.8 million base price plus $128.9 million of debt settlement, net of $15.7 million of cash acquired. The company recorded $46.5 million of goodwill, and the filing states the acquisition was not material to results, financial position, or cash flows.
How did the company's liquidity and investment portfolio look at quarter end?
Cash and cash equivalents were $1,645.9 million at August 31, 2023. Net unrealized losses on available-for-sale securities were $206.9 million, versus $175.3 million at May 31, 2023. The filing states these losses were due to changes in interest rates rather than credit concerns, and the company does not intend to sell these investments before recovery or maturity. Available credit facilities totaled $1,986.3 million, and the company reported compliance with its covenants.
06—Continue