10-Q 1 payx-20220228.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 February 28, 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 February 28, 2022, 361,017,389 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

5

 

Notes to Consolidated Financial Statements

6

Item 2.

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

18

Item 3.

Quantitative and Qualitative Disclosures of Market Risk

30

Item 4.

Controls and Procedures

31

PART II. OTHER INFORMATION

32

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

32

Item 6.

Exhibits

32

Signatures

 

33

 


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

 

 

For the nine months ended

 

 

 

February 28,

 

 

February 28,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Management Solutions

 

$

 

959.9

 

 

$

 

846.8

 

 

$

 

2,597.4

 

 

$

 

2,267.0

 

PEO and Insurance Solutions

 

 

 

301.7

 

 

 

 

249.8

 

 

 

 

827.0

 

 

 

 

715.8

 

Total service revenue

 

 

 

1,261.6

 

 

 

 

1,096.6

 

 

 

 

3,424.4

 

 

 

 

2,982.8

 

Interest on funds held for clients

 

 

 

14.4

 

 

 

 

15.1

 

 

 

 

43.0

 

 

 

 

44.8

 

Total revenue

 

 

 

1,276.0

 

 

 

 

1,111.7

 

 

 

 

3,467.4

 

 

 

 

3,027.6

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of service revenue

 

 

 

352.2

 

 

 

 

328.4

 

 

 

 

996.3

 

 

 

 

955.4

 

Selling, general and administrative expenses

 

 

 

361.0

 

 

 

 

314.7

 

 

 

 

1,025.1

 

 

 

 

965.3

 

Total expenses

 

 

 

713.2

 

 

 

 

643.1

 

 

 

 

2,021.4

 

 

 

 

1,920.7

 

Operating income

 

 

 

562.8

 

 

 

 

468.6

 

 

 

 

1,446.0

 

 

 

 

1,106.9

 

Other expense, net

 

 

 

(8.5

)

 

 

 

(6.0

)

 

 

 

(10.2

)

 

 

 

(18.6

)

Income before income taxes

 

 

 

554.3

 

 

 

 

462.6

 

 

 

 

1,435.8

 

 

 

 

1,088.3

 

Income taxes

 

 

 

123.6

 

 

 

 

112.1

 

 

 

 

339.4

 

 

 

 

253.8

 

Net income

 

$

 

430.7

 

 

$

 

350.5

 

 

$

 

1,096.4

 

 

$

 

834.5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive (loss)/income, net of tax

 

 

 

(50.8

)

 

 

 

(15.9

)

 

 

 

(98.8

)

 

 

 

0.7

 

Comprehensive income

 

$

 

379.9

 

 

$

 

334.6

 

 

$

 

997.6

 

 

$

 

835.2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share

 

$

 

1.19

 

 

$

 

0.97

 

 

$

 

3.04

 

 

$

 

2.32

 

Diluted earnings per share

 

$

 

1.19

 

 

$

 

0.97

 

 

$

 

3.02

 

 

$

 

2.31

 

Weighted-average common shares outstanding

 

 

 

360.9

 

 

 

 

360.6

 

 

 

 

360.6

 

 

 

 

359.8

 

Weighted-average common shares outstanding, assuming dilution

 

 

 

363.4

 

 

 

 

362.8

 

 

 

 

363.1

 

 

 

 

362.0

 

 

 

See Notes to Consolidated Financial Statements.

1

 


Table of Contents

 

PAYCHEX, INC.

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

In millions, except per share amounts

 

 

 

February 28,

 

 

May 31,

 

 

 

2022

 

 

2021

 

Assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

 

267.5

 

 

$

 

995.2

 

Restricted cash

 

 

 

55.8

 

 

 

 

51.3

 

Corporate investments

 

 

 

1,086.0

 

 

 

 

36.7

 

Interest receivable

 

 

 

20.4

 

 

 

 

24.4

 

Accounts receivable, net of allowance for credit losses

 

 

 

720.9

 

 

 

 

578.3

 

PEO unbilled receivables, net of advance collections

 

 

 

463.4

 

 

 

 

450.9

 

Prepaid income taxes

 

 

 

41.7

 

 

 

 

33.5

 

Prepaid expenses and other current assets

 

 

 

277.5

 

 

 

 

249.2

 

Current assets before funds held for clients

 

 

 

2,933.2

 

 

 

 

2,419.5

 

Funds held for clients

 

 

 

4,304.1

 

 

 

 

3,750.0

 

Total current assets

 

 

 

7,237.3

 

 

 

 

6,169.5

 

Long-term restricted cash

 

 

 

25.5

 

 

 

 

37.0

 

Long-term corporate investments

 

 

 

5.1

 

 

 

 

7.1

 

Property and equipment, net of accumulated depreciation

 

 

 

399.5

 

 

 

 

395.8

 

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

 

 

 

84.0

 

 

 

 

103.0

 

Intangible assets, net of accumulated amortization

 

 

 

234.8

 

 

 

 

275.8

 

Goodwill

 

 

 

1,831.8

 

 

 

 

1,820.7

 

Long-term deferred costs

 

 

 

414.1

 

 

 

 

384.1

 

Other long-term assets

 

 

 

51.6

 

 

 

 

34.2

 

Total assets

 

$

 

10,283.7

 

 

$

 

9,227.2

 

Liabilities

 

 

 

 

 

 

 

 

Accounts payable

 

$

 

111.4

 

 

$

 

89.0

 

Accrued corporate compensation and related items

 

 

 

177.2

 

 

 

 

209.7

 

Accrued worksite employee compensation and related items

 

 

 

636.0

 

 

 

 

586.4

 

Short-term borrowings

 

 

 

8.7

 

 

 

 

7.4

 

Deferred revenue

 

 

 

37.1

 

 

 

 

37.9

 

Other current liabilities

 

 

 

382.4

 

 

 

 

336.8

 

Current liabilities before client fund obligations

 

 

 

1,352.8

 

 

 

 

1,267.2

 

Client fund obligations

 

 

 

4,335.1

 

 

 

 

3,671.0

 

Total current liabilities

 

 

 

5,687.9

 

 

 

 

4,938.2

 

Accrued income taxes

 

 

 

56.8

 

 

 

 

25.8

 

Deferred income taxes

 

 

 

188.5

 

 

 

 

218.0

 

Long-term borrowings, net of debt issuance costs

 

 

 

797.6

 

 

 

 

797.3

 

Operating lease liabilities

 

 

 

79.3

 

 

 

 

92.4

 

Other long-term liabilities

 

 

 

187.6

 

 

 

 

207.5

 

Total liabilities

 

 

 

6,997.7

 

 

 

 

6,279.2

 

Commitments and contingencies — Note H

 

 

 

 

 

 

 

 

Stockholders’ equity

 

 

 

 

 

 

 

 

Common stock, $0.01 par value; Authorized: 600.0 shares;
Issued and outstanding:
361.0 shares as of February 28, 2022
and
359.8 shares as of May 31, 2021

 

 

 

3.6

 

 

 

 

3.6

 

Additional paid-in capital

 

 

 

1,530.9

 

 

 

 

1,446.7

 

Retained earnings

 

 

 

1,798.5

 

 

 

 

1,445.9

 

Accumulated other comprehensive (loss)/income

 

 

 

(47.0

)

 

 

 

51.8

 

Total stockholders’ equity

 

 

 

3,286.0

 

 

 

 

2,948.0

 

Total liabilities and stockholders’ equity

 

$

 

10,283.7

 

 

$

 

9,227.2

 

 

 

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 nine months ended February 28, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

other

 

 

 

 

 

 

 

Common stock

 

 

paid-in

 

 

Retained

 

 

comprehensive

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

capital

 

 

earnings

 

 

(loss)/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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,096.4

 

 

 

 

 

 

 

 

1,096.4

 

Unrealized losses on securities, net of $27.1 million in tax benefit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(83.0

)

 

 

 

(83.0

)

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(0.1

)

 

 

 

(0.1

)

Cash dividends declared ($1.98 per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(714.9

)

 

 

 

 

 

 

 

(714.9

)

Repurchases of common shares (2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation costs

 

 

 

 

 

 

 

 

 

 

39.2

 

 

 

 

 

 

 

 

 

 

 

 

39.2

 

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(15.7

)

 

 

 

(15.7

)

Activity related to equity-based plans

 

 

1.2

 

 

 

 

0.0

 

 

 

 

45.0

 

 

 

 

(28.9

)

 

 

 

 

 

 

 

16.1

 

Balance as of February 28, 2022

 

 

361.0

 

 

$

 

3.6

 

 

$

 

1,530.9

 

 

$

 

1,798.5

 

 

$

 

(47.0

)

 

$

 

3,286.0

 

 

 

 

For the three months ended February 28, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

other

 

 

 

 

 

 

 

Common stock

 

 

paid-in

 

 

Retained

 

 

comprehensive

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

capital

 

 

earnings

 

 

(loss)/income

 

 

Total

 

Balance as of November 30, 2021

 

 

360.8

 

 

$

 

3.6

 

 

$

 

1,505.5

 

 

$

 

1,606.9

 

 

$

 

3.8

 

 

$

 

3,119.8

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

430.7

 

 

 

 

 

 

 

 

430.7

 

Unrealized losses on securities, net of $16.5 million in tax benefit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(50.3

)

 

 

 

(50.3

)

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash dividends declared ($0.66 per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(238.5

)

 

 

 

 

 

 

 

(238.5

)

Repurchases of common shares (2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation costs

 

 

 

 

 

 

 

 

 

 

12.8

 

 

 

 

 

 

 

 

 

 

 

 

12.8

 

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(0.5

)

 

 

 

(0.5

)

Activity related to equity-based plans

 

 

0.2

 

 

 

 

0.0

 

 

 

 

12.6

 

 

 

 

(0.6

)

 

 

 

 

 

 

 

12.0

 

Balance as of February 28, 2022

 

 

361.0

 

 

$

 

3.6

 

 

$

 

1,530.9

 

 

$

 

1,798.5

 

 

$

 

(47.0

)

 

$

 

3,286.0

 

 

(1)
Reclassification adjustments out of accumulated other comprehensive 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.
(2)
The Company maintains two programs to repurchase up to $400.0 million of its common stock under each program, with authorization expiring on May 31, 2022 and January 31, 2024, respectively. The purpose of these programs is to manage common stock dilution.

 

 

See Notes to Consolidated Financial Statements.

3

 


Table of Contents

 

PAYCHEX, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED) - continued

In millions, except per share amounts

 

 

 

For the nine months ended February 28, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

other

 

 

 

 

 

 

 

Common stock

 

 

paid-in

 

 

Retained

 

 

comprehensive

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

capital

 

 

earnings

 

 

income

 

 

Total

 

Balance as of May 31, 2020

 

 

358.8

 

 

$

 

3.6

 

 

$

 

1,289.9

 

 

$

 

1,431.4

 

 

$

 

56.5

 

 

$

 

2,781.4

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

834.5

 

 

 

 

 

 

 

 

834.5

 

Unrealized losses on securities, net of $4.1 million in tax benefit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(12.7

)

 

 

 

(12.7

)

Reclassification adjustment for realized gains on securities, net of $0.2 million in tax expense (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(0.8

)

 

 

 

(0.8

)

Cash dividends declared ($1.86 per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(670.5

)

 

 

 

 

 

 

 

(670.5

)

Repurchases of common shares (2)

 

 

(0.9

)

 

 

 

 

 

 

 

(1.7

)

 

 

 

(74.3

)

 

 

 

 

 

 

 

(76.0

)

Stock-based compensation costs

 

 

 

 

 

 

 

 

 

 

38.1