payx-20201130x10q

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 November 30, 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.

(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 November 30, 2020, 360,631,164 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 six months ended
	November 30,				November 30,
	2020		2019		2020		2019
Revenue:
Management Solutions	$	732.8	$	726.7	$	1,420.2	$	1,451.2
PEO and Insurance Solutions		236.1		244.1		466.0		491.1
Total service revenue		968.9		970.8		1,886.2		1,942.3
Interest on funds held for clients		14.8		19.9		29.7		40.4
Total revenue		983.7		990.7		1,915.9		1,982.7
Expenses:
Cost of service revenue		319.9		323.4		627.0		648.8
Selling, general and administrative expenses		309.5		325.6		650.6		643.1
Total expenses		629.4		649.0		1,277.6		1,291.9
Operating income		354.3		341.7		638.3		690.8
Other expense, net		(4.7)		(4.7)		(12.6)		(9.5)
Income before income taxes		349.6		337.0		625.7		681.3
Income taxes		77.2		78.3		141.7		158.4
Net income	$	272.4	$	258.7	$	484.0	$	522.9

Other comprehensive (loss)/income, net of tax		(6.4)		(14.9)		16.6		11.5
Comprehensive income	$	266.0	$	243.8	$	500.6	$	534.4

Basic earnings per share	$	0.76	$	0.72	$	1.35	$	1.46
Diluted earnings per share	$	0.75	$	0.72	$	1.34	$	1.45
Weighted-average common shares outstanding		360.0		358.1		359.5		358.4
Weighted-average common shares outstanding, assuming dilution		362.0		360.6		361.6		361.1

See Notes to Consolidated Financial Statements.

PAYCHEX, INC.

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

In millions, except per share amounts



	November 30,		May 31,
	2020		2020
Assets
Cash and cash equivalents	$	693.5	$	905.2
Restricted cash		59.0		49.8
Corporate investments		174.9		27.2
Interest receivable		24.8		26.2
Accounts receivable, net of allowance for doubtful accounts		519.0		384.1
PEO unbilled receivables, net of advance collections		448.0		380.0
Prepaid income taxes		38.8		16.8
Prepaid expenses and other current assets		241.3		244.8
Current assets before funds held for clients		2,199.3		2,034.1
Funds held for clients		3,393.1		3,430.5
Total current assets		5,592.4		5,464.6
Long-term restricted cash		25.9		21.3
Long-term corporate investments		10.1		10.2
Property and equipment, net of accumulated depreciation		392.4		407.4
Operating lease right-of-use assets, net of accumulated amortization		99.6		114.8
Intangible assets, net of accumulated amortization		297.2		330.6
Goodwill		1,798.9		1,791.1
Long-term deferred costs		367.7		372.5
Other long-term assets		31.2		38.2
Total assets	$	8,615.4	$	8,550.7
Liabilities
Accounts payable	$	70.4	$	79.4
Accrued corporate compensation and related items		149.3		131.7
Accrued worksite employee compensation and related items		518.3		512.4
Short-term borrowings		6.9		5.1
Accrued income taxes		—		50.5
Deferred revenue		40.6		39.2
Other current liabilities		309.9		277.6
Current liabilities before client fund obligations		1,095.4		1,095.9
Client fund obligations		3,284.6		3,331.0
Total current liabilities		4,380.0		4,426.9
Accrued income taxes		13.6		33.5
Deferred income taxes		240.4		240.8
Long-term borrowings, net of debt issuance costs		797.0		796.8
Operating lease liabilities		92.2		96.9
Other long-term liabilities		202.5		174.4
Total liabilities		5,725.7		5,769.3
Commitments and contingencies — Note H
Stockholders’ equity
Common stock, $0.01 par value; Authorized: 600.0 shares; ‎Issued and outstanding: 360.6 shares as of November 30, 2020 ‎and 358.8 shares as of May 31, 2020		3.6		3.6
Additional paid-in capital		1,394.1		1,289.9
Retained earnings		1,418.9		1,431.4
Accumulated other comprehensive income		73.1		56.5
Total stockholders’ equity		2,889.7		2,781.4
Total liabilities and stockholders’ equity	$	8,615.4	$	8,550.7

See Notes to Consolidated Financial Statements.
‎

PAYCHEX, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)

In millions, except per share amounts


	For the six months ended November 30, 2020
								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	—		—		—		484.0		—		484.0
Unrealized gains on securities, net of $2.4 million in tax expense	—		—		—		—		7.3		7.3
Reclassification adjustment for realized gains on securities, net of $0.2 million in tax expense ⁽¹⁾	—		—		—		—		(0.5)		(0.5)
Cash dividends declared ($1.24 per share)	—		—		—		(446.7)		—		(446.7)
Repurchases of common shares ⁽²⁾	(0.4)		—		(0.7)		(28.1)		—		(28.8)
Stock-based compensation costs	—		—		25.5		—		—		25.5
Foreign currency translation adjustment			—		—		—		9.8		9.8
Activity related to equity-based plans	2.2		—		79.4		(21.7)		—		57.7
Balance as of November 30, 2020	360.6	$	3.6	$	1,394.1	$	1,418.9	$	73.1	$	2,889.7


	For the three months ended November 30, 2020
								Accumulated
				Additional				other
	Common stock			paid-in		Retained		comprehensive
	Shares	Amount		capital		earnings		income		Total
Balance as of August 31, 2020	359.5	$	3.6	$	1,325.3	$	1,370.2	$	79.5	$	2,778.6
Net income	—		—		—		272.4		—		272.4
Unrealized losses on securities, net of $1.8 million in tax benefit	—		—		—		—		(5.7)		(5.7)
Reclassification adjustment for realized gains on securities, net of $0.1 million in tax expense ⁽¹⁾	—		—		—		—		(0.3)		(0.3)
Cash dividends declared ($0.62 per share)	—		—		—		(223.5)		—		(223.5)
Stock-based compensation costs	—		—		12.2		—		—		12.2
Foreign currency translation adjustment	—		—		—		—		(0.4)		(0.4)
Activity related to equity-based plans	1.1		—		56.6		(0.2)		—		56.4
Balance as of November 30, 2020	360.6	$	3.6	$	1,394.1	$	1,418.9	$	73.1	$	2,889.7

⁽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 a program to repurchase up to $400.0 million of its common stock, with authorization expiring on May 31, 2022. The purpose of this program is to manage common stock dilution. All shares of common stock repurchased were retired.

See Notes to Consolidated Financial Statements.

‎

PAYCHEX, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED) – continued

In millions, except per share amounts


	For the six months ended November 30, 2019
								Accumulated
				Additional				other
	Common stock			paid-in		Retained		comprehensive
	Shares	Amount		capital		earnings		income		Total
Balance as of May 31, 2019	359.3	$	3.6	$	1,206.3	$	1,409.5	$	0.1	$	2,619.5
Net income	—		—		—		522.9		—		522.9
Unrealized gains on securities, net of $5.2 million in tax expense	—		—		—		—		15.6		15.6
Reclassification adjustment for realized gains on securities, net of $0.4 million in tax expense ⁽¹⁾


		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	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	30
PART II. OTHER INFORMATION		31
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	31
Item 6.	Exhibits	31
Signatures		32