payx-20200229x10q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

_________________________________________

FORM 10-Q

_________________________________________

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

For the Quarterly Period Ended February 29, 2020

¨ 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.

911 Panorama Trail South

Rochester, NY 14625-2396

(585) 385-6666

A Delaware Corporation

IRS Employer Identification Number: 16-1124166

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



Title of each class	Trading Symbol(s)	Name of each exchange of which registered
Common Stock, $0.01 par value	PAYX	NASDAQ

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 x 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 x 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 x

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 x

As of February 29, 2020, 358,715,435 shares of the registrant’s common stock, $.01 par value, were outstanding.

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 29,		February 28,		February 29,		February 28,
	2020		2019		2020		2019
Revenue:
Management Solutions	$	850.0	$	801.6	$	2,301.2	$	2,174.7
PEO and Insurance Solutions		271.5		245.8		762.6		559.0
Total service revenue		1,121.5		1,047.4		3,063.8		2,733.7
Interest on funds held for clients		21.2		23.0		61.6		58.4
Total revenue		1,142.7		1,070.4		3,125.4		2,792.1
Expenses:
Operating expenses		340.3		325.3		989.1		855.7
Selling, general and administrative expenses		332.3		315.8		975.4		879.6
Total expenses		672.6		641.1		1,964.5		1,735.3
Operating income		470.1		429.3		1,160.9		1,056.8
Other (expense)/income, net		(5.9)		(3.7)		(15.4)		0.7
Income before income taxes		464.2		425.6		1,145.5		1,057.5
Income taxes		109.7		101.0		268.1		253.5
Net income	$	354.5	$	324.6	$	877.4	$	804.0

Other comprehensive income, net of tax		33.6		28.1		45.1		16.9
Comprehensive income	$	388.1	$	352.7	$	922.5	$	820.9

Basic earnings per share	$	0.99	$	0.90	$	2.45	$	2.24
Diluted earnings per share	$	0.98	$	0.90	$	2.43	$	2.22
Weighted-average common shares outstanding		358.5		359.2		358.5		359.1
Weighted-average common shares outstanding, assuming dilution		361.0		361.6		361.1		361.6

See Notes to Consolidated Financial Statements.

PAYCHEX, INC.

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

In millions, except per share amounts



	February 29,		May 31,
	2020		2019
Assets
Cash and cash equivalents	$	780.0	$	673.6
Restricted cash		59.3		50.6
Corporate investments		73.8		39.0
Interest receivable		26.1		27.4
Accounts receivable, net of allowance for doubtful accounts		436.3		420.5
PEO unbilled receivables, net of advance collections		384.6		406.3
Prepaid income taxes		23.6		22.6
Prepaid expenses and other current assets		250.0		233.9
Current assets before funds held for clients		2,033.7		1,873.9
Funds held for clients		4,355.7		3,803.8
Total current assets		6,389.4		5,677.7
Long-term restricted cash		7.1		6.5
Long-term corporate investments		10.2		10.2
Property and equipment, net of accumulated depreciation		403.8		408.7
Operating lease right-of-use assets, net of accumulated amortization		124.3		—
Intangible assets, net of accumulated amortization		348.0		399.1
Goodwill		1,789.8		1,782.6
Long-term deferred costs		366.5		366.3
Other long-term assets		27.8		24.9
Total assets	$	9,466.9	$	8,676.0
Liabilities
Accounts payable	$	67.7	$	75.9
Accrued corporate compensation and related items		115.0		146.4
Accrued worksite employee compensation and related items		567.9		578.6
Short-term borrowings		51.2		—
Deferred revenue		38.8		40.3
Other current liabilities		277.1		219.5
Current liabilities before client fund obligations		1,117.7		1,060.7
Client fund obligations		4,272.0		3,784.3
Total current liabilities		5,389.7		4,845.0
Accrued income taxes		32.6		27.3
Deferred income taxes		232.7		223.1
Long-term borrowings, net of debt issuance costs		796.7		796.4
Operating lease liabilities		105.1		13.0
Other long-term liabilities		150.3		151.7
Total liabilities		6,707.1		6,056.5
Commitments and contingencies — Note N
Stockholders’ equity
Common stock, $0.01 par value; Authorized: 600.0 shares; ‎ Issued and outstanding: 358.7 shares as of February 29, 2020 ‎ and 359.3 shares as of May 31, 2019		3.6		3.6
Additional paid-in capital		1,277.7		1,206.3
Retained earnings		1,433.3		1,409.5
Accumulated other comprehensive income		45.2		0.1
Total stockholders’ equity		2,759.8		2,619.5
Total liabilities and stockholders’ equity	$	9,466.9	$	8,676.0

See Notes to Consolidated Financial Statements.

‎

PAYCHEX, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)

In millions, except per share amounts


	For the nine months ended February 29, 2020
								Accumulated
				Additional				other
	Common stock			paid-in		Retained		comprehensive
	Shares	Amount		capital		earnings		income/(loss)		Total
Balance as of May 31, 2019	359.3	$	3.6	$	1,206.3	$	1,409.5	$	0.1	$	2,619.5
Net income	—		—		—		877.4		—		877.4
Unrealized gains on securities, net of reclassification adjustment and tax	—		—		—		—		48.4		48.4
Cash dividends declared ($1.86 per share)	—		—		—		(666.8)		—		(666.8)
Repurchases of common shares	(2.0)		—		(3.7)		(168.2)		—		(171.9)
Stock-based compensation costs	—		—		36.5		—		—		36.5
Foreign currency translation adjustment	—		—		—		—		(3.3)		(3.3)
Activity related to equity-based plans	1.4		—		38.6		(18.6)		—		20.0
Balance as of February 29, 2020	358.7	$	3.6	$	1,277.7	$	1,433.3	$	45.2	$	2,759.8


	For the three months ended February 29, 2020
Balance as of November 30, 2019	358.4	$	3.6	$	1,252.8	$	1,301.4	$	11.6	$	2,569.4
Net income	—		—		—		354.5		—		354.5
Unrealized gains on securities, net of reclassification adjustment and tax	—		—		—		—		34.1		34.1
Cash dividends declared ($0.62 per share)	—		—		—		(222.5)		—		(222.5)
Stock-based compensation costs	—		—		12.7		—		—		12.7
Foreign currency translation adjustment	—		—		—		—		(0.5)		(0.5)
Activity related to equity-based plans	0.3		—		12.2		(0.1)		—		12.1
Balance as of February 29, 2020	358.7	$	3.6	$	1,277.7	$	1,433.3	$	45.2	$	2,759.8


	For the nine months ended February 28, 2019
Balance as of May 31, 2018	359.0	$	3.6	$	1,126.8	$	1,262.6	$	(36.2)	$	2,356.8
Net income	—		—		—		804.0		—		804.0
Unrealized gains on securities, net of reclassification adjustment and tax	—		—		—		—		22.2		22.2
Cash dividends declared ($1.68 per share)	—		—		—		(603.9)		—		(603.9)
Repurchases of common shares	(0.5)		—		(0.8)


		Page
PART I. FINANCIAL INFORMATION
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	25
Item 3.	Quantitative and Qualitative Disclosures of Market Risk	40
Item 4.	Controls and Procedures	40
PART II. OTHER INFORMATION		41
Item 1A.	Risk Factors	41
Item 6.	Exhibits	41
Signatures		42