01—Abstract
Summary
Summary of the 10-Q filed October 1, 2024. Cited figures are marked; the original filing is the authoritative source.
Paychex, Inc. reported results for the first quarter ended August 31, 2024 in this Form 10-Q.
Total revenue was $1.32 billiona ($1,318.5 million), up 3% from $1,286.0 million in the prior year period. Total service revenue rose 2% to $1,281.0 million, with Management Solutions at $961.7 million (up 1%) and PEO and Insurance Solutions at $319.3 million (up 7%). Interest on funds held for clients rose 15% to $37.5 million.
The company stated that excluding the expiration of the Employee Retention Tax Credit (ERTC) program and one less payroll processing day, revenue growth was 7%. Profitability grew more modestly. Operating income increased 2% to $546.7 millionb, with operating margin of 41.5% versus 41.7% a year earlier.
Net income rose 2% to $427.4 millionc and diluted EPS was $1.18 versus $1.16. Adjusted diluted EPS, a non-GAAP measure, was $1.16. Net cash provided by operating activities fell to $546.1 million from $693.0 million.
The company paid $353.4 milliond in dividends ($0.98 per share) and repurchased 0.8 million shares for $104.0 million at an average of $125.50 per share during the quarter. The balance sheet shows total assets of $10.49 billion and stockholders' equity of $3.85 billion as of August 31, 2024.
Short-term borrowings were $18.9 million and long-term borrowings were $798.7 million, with approximately $2.0 billion of unused credit facility capacity. Management stated that AFS securities with unrealized losses were not impaired due to credit risk, and that unrealized losses on the investment portfolio narrowed to $80.4 million from $162.5 million at May 31, 2024.
02—Key points
Key Highlights
- Total revenue of $1,318.5 million, up 3% from $1,286.0 million; total service revenue of $1,281.0 million, up 2%.
- PEO and Insurance Solutions revenue rose 7% to $319.3 million, driven by growth in average PEO worksite employees and PEO insurance revenues.
- Management Solutions revenue increased 1% to $961.7 million, with lower ancillary revenue from the expiration of the ERTC service.
- Operating income rose 2% to $546.7 million; operating margin was 41.5% versus 41.7% in the prior year period.
- Net income of $427.4 million (up 2%) and diluted EPS of $1.18 versus $1.16; adjusted diluted EPS (non-GAAP) of $1.16.
- Net cash provided by operating activities was $546.1 million, down from $693.0 million, with dividends paid of $353.4 million and $104.0 million of share repurchases.
- Total assets of $10.49 billion; approximately $2.0 billion of unused credit facility capacity as of August 31, 2024.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q1 FY2025, Paychex kept $0.32.
- Revenue$1.32B100.0%
- Cost of revenue−$380.0M28.8%
- Gross profit$938.5M71.2%
- Operating costs−$391.8M29.7%
- Operating income$546.7M41.5%
- Interest, other & tax−$119.3M9.0%
- Net income$427.4M32.4%
04—Financials
Financial Highlights
Figures from 10-QQ1 FY2025filed October 1, 2024Financial Statements
Q1 FY2025 against Q1 FY2024
| Line item | Q1 FY2025Q1 FY2024 | Change |
|---|---|---|
| Revenue | $1.32B$1.29B | +2.5% |
| Cost of Revenue | $380.00M$360.20M | +5.5% |
| Gross Profit | $938.50M$925.80M | +1.4% |
| SG&A Expenses | $391.80M$389.50M | +0.6% |
| Operating Expenses | $771.80M$749.70M | +2.9% |
| Operating Income | $546.70M$536.30M | +1.9% |
| Interest Expense | $9.60M$9.40M | +2.1% |
| Net Income | $427.40M$419.20M | +2.0% |
| EPS (Basic) | $1.19$1.16 | +2.6% |
| EPS (Diluted) | $1.18$1.16 | +1.7% |
| Shares Outstanding (Basic) | 360.10M360.80M | −0.2% |
| Shares Outstanding (Diluted) | 361.90M362.80M | −0.2% |
05—Questions
Frequently Asked Questions
What drove the change in Paychex's revenue this quarter?
Total revenue rose 3% to $1,318.5 million. PEO and Insurance Solutions grew 7% on higher average PEO worksite employees and PEO insurance revenue, while Management Solutions grew 1%, held back by lower ancillary revenue after the ERTC program expired. Interest on funds held for clients rose 15% to $37.5 million on higher average rates and balances. Excluding the ERTC expiration and one fewer payroll processing day, the company stated revenue growth was 7%.
Why did operating cash flow decline?
Net cash provided by operating activities was $546.1 million compared with $693.0 million in the prior year period. The filing attributes the change mainly to timing items, including a net increase in accrued income taxes from the first-quarter tax installment, changes in PEO assets and liabilities, and a net decrease in accrued corporate compensation from settling fiscal 2024 year-end bonuses.
How much did Paychex return to shareholders this quarter?
The company paid $353.4 million in dividends, or $0.98 per share, and repurchased 0.8 million shares for $104.0 million at an average price of $125.50 per share. The repurchase program authorizes up to $400.0 million through May 31, 2027, with approximately $296.0 million remaining as of the end of the period.
What is the company's liquidity and debt position?
As of August 31, 2024, the company had cash, restricted cash, and total corporate investments of $1.6 billion, short-term borrowings of $18.9 million, and long-term borrowings of $800.0 million. Unused capacity under its unsecured credit facilities was approximately $2.0 billion. Subsequent to August 31, 2024, the company borrowed $333.5 million on a weighted-average basis overnight under its PNC and JPM facilities.
Are the unrealized losses on the investment portfolio a credit concern?
Management stated that the available-for-sale securities with gross unrealized losses of $98.0 million were not impaired due to credit risk or other valuation concerns, and that the losses were due to changes in interest rates. A substantial portion of these securities held an AA rating or better. Net unrealized losses on the AFS portfolio narrowed to $80.4 million at August 31, 2024 from $162.5 million at May 31, 2024.
06—Continue