10-Q 1 payx-20220831.htm 10-Q 10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

_________________________________________

FORM 10-Q

_________________________________________

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended August 31, 2022

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Transition Period from __________to __________

 

Commission file number 0-11330

__________________________________________________

Paychex, Inc.

(Exact name of registrant as specified in its charter)

 

 

Delaware

(State or other jurisdiction of incorporation or organization)

16-1124166

(I.R.S. Employer Identification No.)

911 Panorama Trail South

Rochester, NY

(Address of principal executive offices)

14625-2396

(Zip Code)

Registrant's telephone number, including area code: (585) 385-6666

 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.01 par value

PAYX

Nasdaq Global Select Market

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

 

 

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

 

As of August 31, 2022, 360,400,603 shares of the registrant’s common stock, $.01 par value, were outstanding.


PAYCHEX, INC.

Table of Contents

 

 

 

Page

PART I. FINANCIAL INFORMATION

1

Item 1.

Financial Statements (Unaudited)

1

 

Consolidated Statements of Income and Comprehensive Income

1

 

Consolidated Balance Sheets

2

 

Consolidated Statements of Stockholders’ Equity

3

 

Consolidated Statements of Cash Flows

4

 

Notes to Consolidated Financial Statements

5

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

16

Item 3.

Quantitative and Qualitative Disclosures of Market Risk

26

Item 4.

Controls and Procedures

27

PART II. OTHER INFORMATION

28

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

28

Item 6.

Exhibits

28

Signatures

 

29

 


Table of Contents

 

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

PAYCHEX, INC.

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED)

In millions, except per share amounts

 

 

 

For the three months ended

 

 

 

August 31,

 

 

 

2022

 

 

2021

 

Revenue:

 

 

 

 

 

 

 

 

Management Solutions

 

$

 

905.5

 

 

$

 

805.5

 

PEO and Insurance Solutions

 

 

 

282.8

 

 

 

 

262.9

 

Total service revenue

 

 

 

1,188.3

 

 

 

 

1,068.4

 

Interest on funds held for clients

 

 

 

17.9

 

 

 

 

14.5

 

Total revenue

 

 

 

1,206.2

 

 

 

 

1,082.9

 

Expenses:

 

 

 

 

 

 

 

 

Cost of service revenue

 

 

 

351.0

 

 

 

 

312.5

 

Selling, general and administrative expenses

 

 

 

359.6

 

 

 

 

327.5

 

Total expenses

 

 

 

710.6

 

 

 

 

640.0

 

Operating income

 

 

 

495.6

 

 

 

 

442.9

 

Other (expense)/income, net

 

 

 

(3.6

)

 

 

 

1.0

 

Income before income taxes

 

 

 

492.0

 

 

 

 

443.9

 

Income taxes

 

 

 

112.8

 

 

 

 

110.3

 

Net income

 

$

 

379.2

 

 

$

 

333.6

 

 

 

 

 

 

 

 

 

 

Other comprehensive loss, net of tax

 

 

 

(37.5

)

 

 

 

(6.7

)

Comprehensive income

 

$

 

341.7

 

 

$

 

326.9

 

 

 

 

 

 

 

 

 

 

Basic earnings per share

 

$

 

1.05

 

 

$

 

0.93

 

Diluted earnings per share

 

$

 

1.05

 

 

$

 

0.92

 

Weighted-average common shares outstanding

 

 

 

360.1

 

 

 

 

360.1

 

Weighted-average common shares outstanding, assuming dilution

 

 

 

362.4

 

 

 

 

362.8

 

 

 

See Notes to Consolidated Financial Statements.

1

 


Table of Contents

 

PAYCHEX, INC.

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

In millions, except per share amounts

 

 

 

August 31,

 

 

May 31,

 

 

 

2022

 

 

2022

 

Assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

 

1,184.2

 

 

$

 

370.0

 

Restricted cash

 

 

 

60.1

 

 

 

 

50.3

 

Corporate investments

 

 

 

45.8

 

 

 

 

853.9

 

Interest receivable

 

 

 

20.6

 

 

 

 

22.3

 

Accounts receivable, net of allowance for credit losses

 

 

 

876.4

 

 

 

 

723.8

 

PEO unbilled receivables, net of advance collections

 

 

 

476.3

 

 

 

 

572.1

 

Prepaid income taxes

 

 

 

 

 

 

 

34.0

 

Prepaid expenses and other current assets

 

 

 

286.2

 

 

 

 

272.3

 

Current assets before funds held for clients

 

 

 

2,949.6

 

 

 

 

2,898.7

 

Funds held for clients

 

 

 

3,135.8

 

 

 

 

3,682.9

 

Total current assets

 

 

 

6,085.4

 

 

 

 

6,581.6

 

Long-term restricted cash

 

 

 

32.6

 

 

 

 

25.5

 

Long-term corporate investments

 

 

 

3.9

 

 

 

 

5.0

 

Property and equipment, net of accumulated depreciation

 

 

 

398.1

 

 

 

 

401.3

 

Operating lease right-of-use assets, net of accumulated amortization

 

 

 

74.7

 

 

 

 

78.7

 

Intangible assets, net of accumulated amortization

 

 

 

212.5

 

 

 

 

224.6

 

Goodwill

 

 

 

1,825.3

 

 

 

 

1,831.5

 

Long-term deferred costs

 

 

 

441.1

 

 

 

 

433.3

 

Other long-term assets

 

 

 

52.3

 

 

 

 

53.7

 

Total assets

 

$

 

9,125.9

 

 

$

 

9,635.2

 

Liabilities

 

 

 

 

 

 

 

 

Accounts payable

 

$

 

84.7

 

 

$

 

105.7

 

Accrued corporate compensation and related items

 

 

 

138.7

 

 

 

 

225.4

 

Accrued worksite employee compensation and related items

 

 

 

715.0

 

 

 

 

683.4

 

Short-term borrowings

 

 

 

10.3

 

 

 

 

8.7

 

Accrued income taxes

 

 

 

40.0

 

 

 

 

 

Deferred revenue

 

 

 

40.8

 

 

 

 

38.4

 

Other current liabilities

 

 

 

361.4

 

 

 

 

388.4

 

Current liabilities before client fund obligations

 

 

 

1,390.9

 

 

 

 

1,450.0

 

Client fund obligations

 

 

 

3,311.3

 

 

 

 

3,819.2

 

Total current liabilities

 

 

 

4,702.2

 

 

 

 

5,269.2

 

Accrued income taxes

 

 

 

61.7

 

 

 

 

58.1

 

Deferred income taxes

 

 

 

157.1

 

 

 

 

165.5

 

Long-term borrowings, net of debt issuance costs

 

 

 

797.8

 

 

 

 

797.7

 

Operating lease liabilities

 

 

 

71.0

 

 

 

 

74.8

 

Other long-term liabilities

 

 

 

198.7

 

 

 

 

184.7

 

Total liabilities

 

 

 

5,988.5

 

 

 

 

6,550.0

 

Commitments and contingencies — Note H

 

 

 

 

 

 

 

 

Stockholders’ equity

 

 

 

 

 

 

 

 

Common stock, $0.01 par value; Authorized: 600.0 shares;
Issued and outstanding:
360.4 shares as of August 31, 2022
and
359.9 shares as of May 31, 2022

 

 

 

3.6

 

 

 

 

3.6

 

Additional paid-in capital

 

 

 

1,568.9

 

 

 

 

1,545.9

 

Retained earnings

 

 

 

1,736.3

 

 

 

 

1,669.6

 

Accumulated other comprehensive loss

 

 

 

(171.4

)

 

 

 

(133.9

)

Total stockholders’ equity

 

 

 

3,137.4

 

 

 

 

3,085.2

 

Total liabilities and stockholders’ equity

 

$

 

9,125.9

 

 

$

 

9,635.2

 

 

 

See Notes to Consolidated Financial Statements.

2

 


Table of Contents

 

PAYCHEX, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)

In millions, except per share amounts

 

 

 

For the three months ended August 31, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

other

 

 

 

 

 

 

 

Common stock

 

 

paid-in

 

 

Retained

 

 

comprehensive

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

capital

 

 

earnings

 

 

loss

 

 

Total

 

Balance as of May 31, 2022

 

 

359.9

 

 

$

 

3.6

 

 

$

 

1,545.9

 

 

$

 

1,669.6

 

 

$

 

(133.9

)

 

$

 

3,085.2

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

379.2

 

 

 

 

 

 

 

 

379.2

 

Unrealized losses on securities, net of $9.7 million in tax benefit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(29.5

)

 

 

 

(29.5

)

Reclassification adjustment for realized gains on securities, net of $ - million in tax expense (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(0.1

)

 

 

 

(0.1

)

Cash dividends declared ($0.79 per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(284.7

)

 

 

 

 

 

 

 

(284.7

)

Stock-based compensation costs

 

 

 

 

 

 

 

 

 

 

14.4

 

 

 

 

 

 

 

 

 

 

 

 

14.4

 

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7.9

)

 

 

 

(7.9

)

Activity related to equity-based plans

 

 

0.5

 

 

 

 

0.0

 

 

 

 

8.6

 

 

 

 

(27.8

)

 

 

 

 

 

 

 

(19.2

)

Balance as of August 31, 2022

 

 

360.4

 

 

$

 

3.6

 

 

$

 

1,568.9

 

 

$

 

1,736.3

 

 

$

 

(171.4

)

 

$

 

3,137.4

 

 

 

 

For the three months ended August 31, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

other

 

 

 

 

 

 

 

Common stock

 

 

paid-in

 

 

Retained

 

 

comprehensive

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

capital

 

 

earnings

 

 

income

 

 

Total

 

Balance as of May 31, 2021

 

 

359.8

 

 

$

 

3.6

 

 

$

 

1,446.7

 

 

$

 

1,445.9

 

 

$

 

51.8

 

 

$

 

2,948.0

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

333.6

 

 

 

 

 

 

 

 

333.6

 

Unrealized losses on securities, net of $0.1 million in tax benefit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(0.5

)

 

 

 

(0.5

)

Reclassification adjustment for realized gains on securities, net of $ - million in tax expense (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(0.1

)

 

 

 

(0.1

)

Cash dividends declared ($0.66 per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(238.1

)

 

 

 

 

 

 

 

(238.1

)

Stock-based compensation costs

 

 

 

 

 

 

 

 

 

 

12.4

 

 

 

 

 

 

 

 

 

 

 

 

12.4

 

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(6.1

)

 

 

 

(6.1

)

Activity related to equity-based plans

 

 

0.8

 

 

 

 

0.0

 

 

 

 

22.4

 

 

 

 

(28.1

)

 

 

 

 

 

 

 

(5.7

)

Balance as of August 31, 2021

 

 

360.6

 

 

$

 

3.6

 

 

$

 

1,481.5

 

 

$

 

1,513.3

 

 

$

 

45.1

 

 

$

 

3,043.5

 

 

(1)
Reclassification adjustments out of accumulated other comprehensive (loss)/income for realized gains, net of tax, on the sale of available-for-sale ("AFS") securities are reflected in interest on funds held for clients and other expense, net on the Consolidated Statements of Income and Comprehensive Income.

 

 

See Notes to Consolidated Financial Statements.

3

 


Table of Contents

 

PAYCHEX, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

In millions

 

 

 

For the three months ended

 

 

 

August 31,

 

 

 

2022

 

 

2021

 

Operating activities

 

 

 

 

 

 

 

 

Net income

 

$

 

379.2

 

 

$

 

333.6

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

 

44.0

 

 

 

 

45.7

 

Amortization of premiums and discounts on AFS securities, net

 

 

 

6.0

 

 

 

 

7.9

 

Amortization of deferred contract costs

 

 

 

53.0

 

 

 

 

49.1

 

Stock-based compensation costs

 

 

 

14.4

 

 

 

 

12.4

 

Provision for deferred income taxes

 

 

 

2.5

 

 

 

 

11.5

 

Provision for credit losses

 

 

 

4.5

 

 

 

 

(3.6

)

Net realized gains on sales of AFS securities

 

 

 

(0.1

)

 

 

 

(0.1

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Interest receivable

 

 

 

1.7

 

 

 

 

3.1

 

Accounts receivable and PEO unbilled receivables, net

 

 

 

(61.2

)

 

 

 

(30.4

)

Prepaid expenses and other current assets

 

 

 

23.7

 

 

 

 

23.2

 

Accounts payable and other current liabilities

 

 

 

(61.1

)

 

 

 

(29.1

)

Deferred costs

 

 

 

(64.5

)

 

 

 

(53.7

)

Net change in other long-term assets and liabilities

 

 

 

23.7

 

 

 

 

17.6

 

Net change in operating lease right-of-use assets and liabilities

 

 

 

(1.5

)

 

 

 

(1.6

)

Net cash provided by operating activities

 

 

 

364.3

 

 

 

 

385.6

 

Investing activities

 

 

 

 

 

 

 

 

Purchases of AFS securities

 

 

 

(3,807.6

)

 

 

 

(247.5

)

Proceeds from sales and maturities of AFS securities

 

 

 

5,066.9

 

 

 

 

256.9

 

Purchases of property and equipment

 

 

 

(30.6

)

 

 

 

(30.4

)

Purchases of other assets, net

 

 

 

(5.6

)

 

 

 

(1.3

)

Net cash provided by/(used in) investing activities

 

 

 

1,223.1

 

 

 

 

(22.3

)

Financing activities

 

 

 

 

 

 

 

 

Net change in client fund obligations

 

 

 

(507.9

)

 

 

 

32.4

 

Net change in short-term borrowings