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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 August 31, 2021

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, 2021, 360,590,737 shares of the registrant’s common stock, $.01 par value, were outstanding.


PAYCHEX, INC.

Table of Contents

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

16

Item 3.

Quantitative and Qualitative Disclosures of Market Risk

28

Item 4.

Controls and Procedures

28

PART II. OTHER INFORMATION

29

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

29

Item 6.

Exhibits

29

Signatures

30

 


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,

2021

2020

Revenue:

Management Solutions

$

805.5

$

687.4

PEO and Insurance Solutions

262.9

229.9

Total service revenue

1,068.4

917.3

Interest on funds held for clients

14.5

14.9

Total revenue

1,082.9

932.2

Expenses:

Cost of service revenue

312.5

307.1

Selling, general and administrative expenses

327.5

341.1

Total expenses

640.0

648.2

Operating income

442.9

284.0

Other income/(expense), net

1.0

(7.9)

Income before income taxes

443.9

276.1

Income taxes

110.3

64.5

Net income

$

333.6

$

211.6

Other comprehensive (loss)/income, net of tax

(6.7)

23.0

Comprehensive income

$

326.9

$

234.6

Basic earnings per share

$

0.93

$

0.59

Diluted earnings per share

$

0.92

$

0.59

Weighted-average common shares outstanding

360.1

359.1

Weighted-average common shares outstanding, assuming dilution

362.8

361.3

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,

2021

2021

Assets

Cash and cash equivalents

$

1,102.0

$

995.2

Restricted cash

48.8

51.3

Corporate investments

39.6

36.7

Interest receivable

21.3

24.4

Accounts receivable, net of allowance for doubtful accounts

574.1

578.3

PEO unbilled receivables, net of advance collections

489.1

450.9

Prepaid income taxes

33.5

Prepaid expenses and other current assets

260.7

249.2

Current assets before funds held for clients

2,535.6

2,419.5

Funds held for clients

3,781.7

3,750.0

Total current assets

6,317.3

6,169.5

Long-term restricted cash

34.8

37.0

Long-term corporate investments

7.1

7.1

Property and equipment, net of accumulated depreciation

395.4

395.8

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

104.2

103.0

Intangible assets, net of accumulated amortization

260.0

275.8

Goodwill

1,816.7

1,820.7

Long-term deferred costs

387.4

384.1

Other long-term assets

44.4

34.2

Total assets

$

9,367.3

$

9,227.2

Liabilities

Accounts payable

$

79.0

$

89.0

Accrued corporate compensation and related items

132.0

209.7

Accrued worksite employee compensation and related items

595.6

586.4

Short-term borrowings

7.1

7.4

Accrued income taxes

40.9

Deferred revenue

38.6

37.9

Other current liabilities

361.3

336.8

Current liabilities before client fund obligations

1,254.5

1,267.2

Client fund obligations

3,703.4

3,671.0

Total current liabilities

4,957.9

4,938.2

Accrued income taxes

42.3

25.8

Deferred income taxes

225.7

218.0

Long-term borrowings, net of debt issuance costs

797.4

797.3

Operating lease liabilities

92.6

92.4

Other long-term liabilities

207.9

207.5

Total liabilities

6,323.8

6,279.2

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 August 31, 2021
and 359.8 shares as of May 31, 2021

3.6

3.6

Additional paid-in capital

1,481.5

1,446.7

Retained earnings

1,513.3

1,445.9

Accumulated other comprehensive income

45.1

51.8

Total stockholders’ equity

3,043.5

2,948.0

Total liabilities and stockholders’ equity

$

9,367.3

$

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 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)

Repurchases of common shares (2)

Stock-based compensation costs

12.4

12.4

Foreign currency translation adjustment

(6.1)

(6.1)

Activity related to equity-based plans

0.8

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

For the three months ended August 31, 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

211.6

211.6

Unrealized gains on securities, net of $4.2 million in tax expense

13.0

13.0

Reclassification adjustment for realized gains on securities, net of $0.1 million in tax expense (1)

(0.2)

(0.2)

Cash dividends declared ($0.62 per share)

(223.2)

(223.2)

Repurchases of common shares (2)

(0.4)

(0.7)

(28.1)

(28.8)

Stock-based compensation costs

13.3

13.3

Foreign currency translation adjustment

10.2

10.2

Activity related to equity-based plans

1.1

22.8

(21.5)

1.3

Balance as of August 31, 2020

359.5

$

3.6

$

1,325.3

$

1,370.2

$

79.5

$

2,778.6

(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. All shares of common stock repurchased were retired.

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,

2021

2020

Operating activities

Net income

$

333.6

$

211.6

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

Depreciation and amortization

45.7

49.6

Amortization of premiums and discounts on AFS securities, net

7.9

9.5

Amortization of deferred contract costs

49.1

47.3

Stock-based compensation costs

12.4

13.3

Provision for/(benefit) from deferred income taxes

11.5

(1.5)

Provision for allowance for doubtful accounts

(3.6)

0.6

Net realized gains on sales of AFS securities

(0.1)

(0.3)

Changes in operating assets and liabilities:

Interest receivable

3.1

2.6

Accounts receivable and PEO unbilled receivables, net

(30.4)

(68.8)

Prepaid expenses and other current assets

23.2

8.3

Accounts payable and other current liabilities

(29.1)

(55.6)

Deferred costs

(53.7)

(43.3)

Net change in other long-term assets and liabilities

17.6

23.7

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

(1.6)

18.0

Net cash provided by operating activities

385.6

215.0

Investing activities

Purchases of AFS securities

(247.5)

(2,475.5)

Proceeds from sales and maturities of AFS securities

256.9

2,260.5

Purchases of property and equipment

(30.4)

(20.7)

Purchases of other assets

(1.3)

(0.6)

Net cash used in investing activities

(22.3)

(236.3)

Financing activities

Net change in client fund obligations

32.4

(133.1)

Net change in short-term borrowings

(0.3)

1.0

Dividends paid

(238.1)

(223.2)

Repurchases of common shares

(28.8)

Activity related to equity-based plans

(5.7)

1.3

Net cash used in financing activities

(211.7)

(382.8)

Net change in cash, restricted cash, and equivalents

151.6

(404.1)

Cash, restricted cash, and equivalents, beginning of period

1,823.1

1,659.8

Cash, restricted cash, and equivalents, end of period

$

1,974.7

$

1,255.7