01—Abstract
Summary
Summary of the 10-Q filed December 19, 2024. 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, 2024.
Total revenue rose to $1,316.9 milliona for the quarter, up 5%, and $2,635.4 million for the six months, up 4%. Management states that excluding the expiration of the Employee Retention Tax Credit ("ERTC") program, revenue growth was 7% for the quarter and 6% for the six months. Operating income increased 6% to $538.1 million for the quarter and 4% to $1,084.8 million for the six months, and net income was $413.4 million for the quarter, up 5%, and $840.8 million for the six months, up 4%.
Diluted earnings per share were $1.14b for the quarter, up 6%, and $2.32 for the six months, up 4%. Management notes that operating income in both periods was impacted by the ERTC expiration. Growth was driven by Management Solutions revenue of $962.9 million for the quarter (up 3%) and PEO and Insurance Solutions revenue of $317.9 million (up 7%), with PEO direct insurance costs rising 17% for the quarter as worksite employee counts and PEO insurance revenues grew.
Interest on funds held for clients rose 15% to $36.1 millionc for the quarter, primarily due to higher average interest rates and investment balances. Other income, net declined to $5.6 million for the quarter from $11.7 million a year earlier, reflecting lower average interest rates on corporate investments and lower balances. Cash flow and liquidity remained solid.
Net cash provided by operating activities was $841.1 milliond for the six months, down from $1,004.3 million, mainly due to changes in prepaid income taxes, PEO assets and liabilities, and accrued corporate compensation. Dividends paid totaled $706.2 million for the six months, with dividends declared at $1.96 per share.
Unused capacity under credit facilities was approximately $2.0 billion, and long-term borrowings were $800.0 million. Net unrealized losses on available-for-sale securities were $85.9 million as of November 30, 2024, improved from $162.5 million at May 31, 2024.
02—Key points
Key Highlights
- Total revenue of $1,316.9 million for the quarter, up 5%; excluding ERTC expiration, growth was 7%.
- Operating income of $538.1 million for the quarter, up 6%, with an operating margin of 40.9% versus 40.2% a year earlier.
- Diluted EPS of $1.14 for the quarter, up 6%, and $2.32 for the six months, up 4%.
- PEO and Insurance Solutions revenue rose 7% to $317.9 million for the quarter, while Management Solutions revenue rose 3% to $962.9 million.
- Operating cash flow for the six months declined to $841.1 million from $1,004.3 million.
- Cash dividends declared were $1.96 per share for the six months, versus $1.78 a year earlier.
- Approximately $2.0 billion of unused credit facility capacity; the company reported $800.0 million of long-term borrowings.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q2 FY2025, Paychex kept $0.31.
- Revenue$1.32B100.0%
- Cost of revenue−$379.1M28.8%
- Gross profit$937.8M71.2%
- Operating costs−$399.7M30.4%
- Operating income$538.1M40.9%
- Interest, other & tax−$124.7M9.5%
- Net income$413.4M31.4%
04—Financials
Financial Highlights
Figures from 10-QQ2 FY2025filed December 19, 2024Financial Statements
Q2 FY2025 against Q2 FY2024
| Line item | Q2 FY2025Q2 FY2024 | Change |
|---|---|---|
| Revenue | $1.32B$1.26B | +4.7% |
| Cost of Revenue | $379.10M$364.10M | +4.1% |
| Gross Profit | $937.80M$893.80M | +4.9% |
| SG&A Expenses | $399.70M$387.60M | +3.1% |
| Operating Expenses | $778.80M$751.70M | +3.6% |
| Operating Income | $538.10M$506.20M | +6.3% |
| Interest Expense | $9.50M$8.50M | +11.8% |
| Net Income | $413.40M$392.70M | +5.3% |
| EPS (Basic) | $1.15$1.09 | +5.5% |
| EPS (Diluted) | $1.14$1.08 | +5.6% |
| Shares Outstanding (Basic) | 360.00M360.50M | −0.1% |
| Shares Outstanding (Diluted) | 361.70M362.10M | −0.1% |
05—Questions
Frequently Asked Questions
How did the expiration of the Employee Retention Tax Credit affect results?
Management said the ERTC program's expiration reduced revenue from ancillary services in Management Solutions and affected operating income in both periods. Excluding its impact, total revenue growth was 7% for the quarter and 6% for the six months.
What drove growth in PEO and Insurance Solutions?
Revenue grew 7% to $317.9 million for the quarter, driven by growth in the average number of PEO worksite employees and higher PEO insurance revenues. PEO direct insurance costs rose 17% in the quarter.
Why did other income decline?
Other income, net fell to $5.6 million for the quarter from $11.7 million, primarily due to lower average interest rates earned on corporate investments and lower average investment balances.
Why did operating cash flow decrease?
Net cash from operating activities was $841.1 million for the six months versus $1,004.3 million. The filing cites a higher increase in prepaid income taxes from the timing of estimated tax payments, net changes in PEO assets and liabilities, and a decrease in accrued corporate compensation from settling fiscal 2024 year-end bonuses.
How much liquidity does the company have?
Cash, restricted cash, and total corporate investments totaled $1.3 billion as of November 30, 2024. Unused capacity under unsecured credit facilities was approximately $2.0 billion, and the company stated these resources support operations, capital purchases, share repurchases, dividends, and debt service.
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