10-Q

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

 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.

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.

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.

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			—			—			38.1
Foreign currency translation adjustment		—			—		—			—			14.2			14.2
Activity related to equity-based plans		2.4			—