01—Abstract
Summary
Summary of the 10-Q filed April 2, 2024. Cited figures are marked; the original filing is the authoritative source.
Paychex, Inc. reported results for the third quarter and nine months ended February 29, 2024.
Total revenue for the quarter was $1,439.3 milliona versus $1,381.0 million in the prior-year quarter, with Management Solutions revenue of $1,049.9 million and PEO and Insurance Solutions revenue of $345.5 million. Operating income rose to $649.8 million from $611.9 million, and net income was $498.6 million, or $1.38 diluted earnings per share, compared with $467.4 million and $1.29 a year earlier. For the nine months, total revenue was $3,983.2 million, operating income was $1,692.3 million, and net income was $1,310.5 million, or $3.62 diluted earnings per share.
Interest on funds held for clients rose to $108.1 millionb for the nine months from $74.9 million, which the filing attributes primarily to higher average interest rates. Cash flow from operations for the nine months was $1,676.0 million, compared with $1,288.8 million a year earlier. During the period the company repurchased 1.5 million common shares at a weighted average price of $115.37 per share, for $169.2 million in total, and paid dividends of $962.5 million.
The company acquired Alterna Capital Solutions LLC effective July 31, 2023, with consideration of $95.1 millionc plus settlement of $128.9 million in debt, net of cash acquired. Cash, restricted cash and total corporate investments stood at $1.8 billion as of February 29, 2024. Total short-term and long-term borrowings were $817.3 million, and the company reported no overnight borrowings under its credit facilities after the quarter end.
The filing shows net unrealized losses of $161.9 milliond on available-for-sale securities, with $3.3 billion of AFS securities at fair value. The company's board approved a new repurchase program of up to $400.0 million, expiring May 31, 2027, and the company stated that no shares were repurchased during the third quarter.
02—Key points
Key Highlights
- Third-quarter total revenue of $1,439.3 million, up from $1,381.0 million, with operating income of $649.8 million versus $611.9 million.
- Third-quarter diluted EPS of $1.38 compared with $1.29; nine-month diluted EPS of $3.62 compared with $3.33.
- Management Solutions revenue of $1,049.9 million for the quarter and PEO and Insurance Solutions revenue of $345.5 million, versus $1,024.5 million and $321.2 million in the prior-year quarter.
- Interest on funds held for clients increased to $43.9 million for the quarter and $108.1 million for the nine months, primarily due to higher average interest rates.
- Nine-month operating cash flow of $1,676.0 million versus $1,288.8 million, and dividends paid of $962.5 million.
- Acquisition of Alterna Capital Solutions LLC effective July 31, 2023, with goodwill of $46.7 million recorded; the filing describes the acquisition as not material to results.
- New $400.0 million share repurchase authorization approved January 19, 2024, expiring May 31, 2027; no shares were repurchased in the third quarter.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q3 FY2024, Paychex kept $0.35.
- Revenue$1.44B100.0%
- Cost of revenue−$379.8M26.4%
- Gross profit$1.06B73.6%
- Operating costs−$409.7M28.5%
- Operating income$649.8M45.1%
- Interest, other & tax−$151.2M10.5%
- Net income$498.6M34.6%
04—Financials
Financial Highlights
Figures from 10-QQ3 FY2024filed April 2, 2024Financial Statements
Q3 FY2024 against Q3 FY2023
| Line item | Q3 FY2024Q3 FY2023 | Change |
|---|---|---|
| Revenue | $1.44B$1.38B | +4.2% |
| Cost of Revenue | $379.80M$372.90M | +1.9% |
| Gross Profit | $1.06B$1.01B | +5.1% |
| SG&A Expenses | $409.70M$396.20M | +3.4% |
| Operating Expenses | $789.50M$769.10M | +2.7% |
| Operating Income | $649.80M$611.90M | +6.2% |
| Interest Expense | $9.90M$9.00M | +10.0% |
| Net Income | $498.60M$467.40M | +6.7% |
| EPS (Basic) | $1.39$1.30 | +6.9% |
| EPS (Diluted) | $1.38$1.29 | +7.0% |
| Shares Outstanding (Basic) | 359.90M360.50M | −0.2% |
| Shares Outstanding (Diluted) | 361.70M362.30M | −0.2% |
05—Questions
Frequently Asked Questions
How did Paychex perform in the third quarter ended February 29, 2024?
Total revenue rose to $1,439.3 million from $1,381.0 million, operating income increased to $649.8 million from $611.9 million, and net income reached $498.6 million compared with $467.4 million in the prior-year quarter. Diluted earnings per share were $1.38 versus $1.29.
What drove the increase in revenue?
The filing attributes Management Solutions revenue growth to a larger client base, higher product penetration including HR Solutions and retirement, partly offset by lower ancillary revenue from winding down the Employee Retention Tax Credit Service. PEO and Insurance Solutions revenue grew on more average PEO worksite employees and higher PEO insurance revenues.
How much did the company return to shareholders?
For the nine months, dividends paid totaled $962.5 million, with the cumulative dividend per share rising to $2.67 from $2.37. The company also repurchased 1.5 million shares for $169.2 million, and no shares were repurchased during the third quarter.
What is the company's liquidity position?
As of February 29, 2024, cash, restricted cash and total corporate investments totaled $1.8 billion, and total short-term and long-term borrowings were $817.3 million. The company had approximately $2.0 billion of unused credit facility capacity and reported no overnight borrowings after the quarter end.
Are there notable risks in the investment portfolio?
AFS securities reflected net unrealized losses of $161.9 million as of February 29, 2024. The company stated that these losses were due to changes in interest rates rather than credit concerns, that a substantial portion of the holdings are rated AA or better, and that it does not intend to sell them before recovery or maturity.
06—Continue