01—Abstract
Summary
Summary of the 10-Q filed December 21, 2023. Cited figures are marked; the original filing is the authoritative source.
Paychex, Inc. reported results for the second quarter and six months ended November 30, 2023 in this Form 10-Q.
Total revenue rose to $1,257.9 milliona for the quarter from $1,190.3 million a year earlier, and to $2,543.9 million for the six months from $2,396.5 million. Management Solutions revenue was $930.7 million for the quarter and PEO and Insurance Solutions revenue was $295.7 million, while interest on funds held for clients increased to $31.5 million from $21.7 million. Operating income was $506.2 million for the quarter and $1,042.5 million for the six months, and net income was $392.7 million and $811.9 million, respectively.
Diluted earnings per share were $1.08b for the quarter and $2.24 for the six months. The balance sheet expanded substantially over the period. Total assets were $12,052.1 million at November 30, 2023, up from $10,546.4 million at May 31, 2023, driven largely by funds held for clients of $5,439.7 million and client fund obligations of $5,626.8 million.
Cash and cash equivalents were $1,363.1 millionc, and total stockholders' equity was $3,524.4 million. Net cash provided by operating activities was $1,004.3 million for the six months, compared with $719.7 million a year earlier. The company acquired Alterna Capital Solutions LLC effective July 31, 2023, and the filing describes that acquisition as not material to results, financial position, or cash flows.
Capital returns continued during the period. Dividends declared totaled $1.78d per share for the six months, and the company repurchased 1.5 million shares for $169.2 million under a $400.0 million program expiring January 31, 2024. The filing also notes unrealized losses of $187.2 million on available-for-sale securities as of November 30, 2023, and states that the company believes these losses reflect interest rate changes rather than credit concerns.
02—Key points
Key Highlights
- Total revenue of $1,257.9 million for the second quarter, up from $1,190.3 million in the prior year period, and $2,543.9 million for the six months, up from $2,396.5 million.
- Net income of $392.7 million for the quarter and $811.9 million for the six months, compared with $360.3 million and $739.5 million in the prior year periods.
- Diluted earnings per share of $1.08 for the quarter and $2.24 for the six months, versus $0.99 and $2.04 a year earlier.
- Interest on funds held for clients rose to $31.5 million for the quarter, reflecting increases of 44% for the quarter and 62% for the six months due to higher average interest rates.
- Net cash provided by operating activities was $1,004.3 million for the six months, up from $719.7 million in the prior year period.
- The company acquired Alterna Capital Solutions LLC effective July 31, 2023, with goodwill of $46.7 million recorded; the filing describes the acquisition as not material.
- Repurchased 1.5 million common shares for $169.2 million in the six months under a $400.0 million authorization expiring January 31, 2024.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q2 FY2024, Paychex kept $0.31.
- Revenue$1.26B100.0%
- Cost of revenue−$364.1M28.9%
- Gross profit$893.8M71.1%
- Operating costs−$387.6M30.8%
- Operating income$506.2M40.2%
- Interest, other & tax−$113.5M9.0%
- Net income$392.7M31.2%
04—Financials
Financial Highlights
Figures from 10-QQ2 FY2024filed December 21, 2023Financial Statements
Q2 FY2024 against Q2 FY2023
| Line item | Q2 FY2024Q2 FY2023 | Change |
|---|---|---|
| Revenue | $1.26B$1.19B | +5.7% |
| Cost of Revenue | $364.10M$359.30M | +1.3% |
| Gross Profit | $893.80M$831.00M | +7.6% |
| SG&A Expenses | $387.60M$358.70M | +8.1% |
| Operating Expenses | $751.70M$718.00M | +4.7% |
| Operating Income | $506.20M$472.30M | +7.2% |
| Interest Expense | $8.50M$9.20M | −7.6% |
| Net Income | $392.70M$360.30M | +9.0% |
| EPS (Basic) | $1.09$1.00 | +9.0% |
| EPS (Diluted) | $1.08$0.99 | +9.1% |
| Shares Outstanding (Basic) | 360.50M360.50M | 0.0% |
| Shares Outstanding (Diluted) | 362.10M362.30M | −0.1% |
05—Questions
Frequently Asked Questions
How did Paychex's revenue and profitability trend in the second quarter of fiscal 2024?
Total revenue rose to $1,257.9 million from $1,190.3 million, and operating income increased to $506.2 million from $472.3 million. Net income reached $392.7 million compared with $360.3 million, and diluted EPS was $1.08 versus $0.99. The filing attributes revenue growth to more clients served, higher revenue per client, growth in PEO worksite employees, and higher interest income.
What drove the increase in interest on funds held for clients?
The filing states that interest on funds held for clients increased to $31.5 million for the quarter and $64.2 million for the six months, reflecting increases of 44% and 62%, respectively, due to higher average interest rates. Average interest rates earned on funds held for clients were 3.1% for the quarter compared with 2.2% a year earlier.
How large are the company's client fund obligations and funds held for clients?
As of November 30, 2023, funds held for clients were $5,439.7 million and client fund obligations were $5,626.8 million, up from $4,118.8 million and $4,294.0 million at May 31, 2023. The filing notes these balances fluctuate with the timing of collections and remittances to tax agencies and employees.
What is the status of the company's share repurchases and dividends?
The company repurchased 1.5 million shares at a weighted average price of $115.37 during the six months, totaling $169.2 million, and $157.9 million remained available under the $400.0 million program expiring January 31, 2024. Cumulative dividends declared were $1.78 per share for the six months, compared with $1.58 a year earlier.
What unrealized losses does the company hold on its investment portfolio?
Available-for-sale securities reflected net unrealized losses of $187.2 million as of November 30, 2023, compared with $175.3 million at May 31, 2023. The filing states the company believes these losses were caused by changes in interest rates rather than increased credit risk, and that it does not intend to sell these investments before recovery or maturity.
06—Continue