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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 November 30, 2023

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 November 30, 2023, 359,821,826 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 About Market Risk

29

Item 4.

Controls and Procedures

29

PART II. OTHER INFORMATION

30

Item 2.

Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Repurchase of Equity Securities

30

Item 5.

Other Information

30

Item 6.

Exhibits

30

Signatures

 

32

 


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 six months ended

 

 

 

November 30,

 

 

November 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Management Solutions

 

$

 

930.7

 

 

$

 

895.3

 

 

$

 

1,886.2

 

 

$

 

1,800.8

 

PEO and Insurance Solutions

 

 

 

295.7

 

 

 

 

273.3

 

 

 

 

593.5

 

 

 

 

556.1

 

Total service revenue

 

 

 

1,226.4

 

 

 

 

1,168.6

 

 

 

 

2,479.7

 

 

 

 

2,356.9

 

Interest on funds held for clients

 

 

 

31.5

 

 

 

 

21.7

 

 

 

 

64.2

 

 

 

 

39.6

 

Total revenue

 

 

 

1,257.9

 

 

 

 

1,190.3

 

 

 

 

2,543.9

 

 

 

 

2,396.5

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of service revenue

 

 

 

364.1

 

 

 

 

359.3

 

 

 

 

724.3

 

 

 

 

710.3

 

Selling, general and administrative expenses

 

 

 

387.6

 

 

 

 

358.7

 

 

 

 

777.1

 

 

 

 

718.3

 

Total expenses

 

 

 

751.7

 

 

 

 

718.0

 

 

 

 

1,501.4

 

 

 

 

1,428.6

 

Operating income

 

 

 

506.2

 

 

 

 

472.3

 

 

 

 

1,042.5

 

 

 

 

967.9

 

Other income/(expense), net

 

 

 

11.7

 

 

 

 

2.9

 

 

 

 

24.5

 

 

 

 

(0.7

)

Income before income taxes

 

 

 

517.9

 

 

 

 

475.2

 

 

 

 

1,067.0

 

 

 

 

967.2

 

Income taxes

 

 

 

125.2

 

 

 

 

114.9

 

 

 

 

255.1

 

 

 

 

227.7

 

Net income

 

$

 

392.7

 

 

$

 

360.3

 

 

$

 

811.9

 

 

$

 

739.5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income/(loss), net of tax

 

 

 

15.9

 

 

 

 

(26.9

)

 

 

 

(7.3

)

 

 

 

(64.4

)

Comprehensive income

 

$

 

408.6

 

 

$

 

333.4

 

 

$

 

804.6

 

 

$

 

675.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share

 

$

 

1.09

 

 

$

 

1.00

 

 

$

 

2.25

 

 

$

 

2.05

 

Diluted earnings per share

 

$

 

1.08

 

 

$

 

0.99

 

 

$

 

2.24

 

 

$

 

2.04

 

Weighted-average common shares outstanding

 

 

 

360.5

 

 

 

 

360.5

 

 

 

 

360.6

 

 

 

 

360.2

 

Weighted-average common shares outstanding, assuming dilution

 

 

 

362.1

 

 

 

 

362.3

 

 

 

 

362.4

 

 

 

 

362.3

 

 

 

See Notes to Consolidated Financial Statements.

1

 


Table of Contents

 

PAYCHEX, INC.

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

In millions, except per share amounts

 

 

 

November 30,

 

 

May 31,

 

 

 

2023

 

 

2023

 

Assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

 

1,363.1

 

 

$

 

1,222.0

 

Restricted cash

 

 

 

47.9

 

 

 

 

49.8

 

Corporate investments

 

 

 

34.4

 

 

 

 

373.4

 

Interest receivable

 

 

 

23.7

 

 

 

 

24.4

 

Accounts receivable, net of allowance for credit losses

 

 

 

1,082.7

 

 

 

 

873.3

 

PEO unbilled receivables, net of advance collections

 

 

 

544.4

 

 

 

 

528.5

 

Prepaid income taxes

 

 

 

83.5

 

 

 

 

48.1

 

Prepaid expenses and other current assets

 

 

 

304.3

 

 

 

 

289.8

 

Current assets before funds held for clients

 

 

 

3,484.0

 

 

 

 

3,409.3

 

Funds held for clients

 

 

 

5,439.7

 

 

 

 

4,118.8

 

Total current assets

 

 

 

8,923.7

 

 

 

 

7,528.1

 

Long-term corporate investments

 

 

 

1.6

 

 

 

 

3.8

 

Property and equipment, net of accumulated depreciation

 

 

 

417.6

 

 

 

 

396.3

 

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

 

 

 

59.4

 

 

 

 

61.5

 

Intangible assets, net of accumulated amortization

 

 

 

201.0

 

 

 

 

187.4

 

Goodwill

 

 

 

1,882.3

 

 

 

 

1,834.0

 

Long-term deferred costs

 

 

 

474.6

 

 

 

 

470.1

 

Other long-term assets

 

 

 

91.9

 

 

 

 

65.2

 

Total assets

 

$

 

12,052.1

 

 

$

 

10,546.4

 

Liabilities

 

 

 

 

 

 

 

 

Accounts payable

 

$

 

92.3

 

 

$

 

84.7

 

Accrued corporate compensation and related items

 

 

 

164.1

 

 

 

 

209.9

 

Accrued worksite employee compensation and related items

 

 

 

806.2

 

 

 

 

763.9

 

Short-term borrowings

 

 

 

13.6

 

 

 

 

10.2

 

Deferred revenue

 

 

 

55.1

 

 

 

 

47.3

 

Other current liabilities

 

 

 

496.3

 

 

 

 

395.4

 

Current liabilities before client fund obligations

 

 

 

1,627.6

 

 

 

 

1,511.4

 

Client fund obligations

 

 

 

5,626.8

 

 

 

 

4,294.0

 

Total current liabilities

 

 

 

7,254.4

 

 

 

 

5,805.4

 

Accrued income taxes

 

 

 

93.2

 

 

 

 

83.0

 

Deferred income taxes

 

 

 

103.0

 

 

 

 

112.1

 

Long-term borrowings, net of debt issuance costs

 

 

 

798.4

 

 

 

 

798.2

 

Operating lease liabilities

 

 

 

53.5

 

 

 

 

57.3

 

Other long-term liabilities

 

 

 

225.2

 

 

 

 

197.2

 

Total liabilities

 

 

 

8,527.7

 

 

 

 

7,053.2

 

Commitments and contingencies — Note I

 

 

 

 

 

 

 

 

Stockholders’ equity

 

 

 

 

 

 

 

 

Common stock, $0.01 par value; Authorized: 600.0 shares;
Issued and outstanding:
359.8 shares as of November 30, 2023
and
360.5 shares as of May 31, 2023

 

 

 

3.6

 

 

 

 

3.6

 

Additional paid-in capital

 

 

 

1,678.6

 

 

 

 

1,626.4

 

Retained earnings

 

 

 

2,009.4

 

 

 

 

2,023.1

 

Accumulated other comprehensive loss

 

 

 

(167.2

)

 

 

 

(159.9

)

Total stockholders’ equity

 

 

 

3,524.4

 

 

 

 

3,493.2

 

Total liabilities and stockholders’ equity

 

$

 

12,052.1

 

 

$

 

10,546.4

 

 

 

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 six months ended November 30, 2023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

other

 

 

 

 

 

 

 

Common stock

 

 

paid-in

 

 

Retained

 

 

comprehensive

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

capital

 

 

earnings

 

 

loss

 

 

Total

 

Balance as of May 31, 2023

 

 

360.5

 

 

$

 

3.6

 

 

$

 

1,626.4

 

 

$

 

2,023.1

 

 

$

 

(159.9

)

 

$

 

3,493.2

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

811.9

 

 

 

 

 

 

 

 

811.9

 

Unrealized losses on securities, net of $2.8 million in tax benefit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(9.1

)

 

 

 

(9.1

)

Reclassification adjustment for realized losses on securities, net of $0.0 million in tax benefit (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

0.0

 

 

 

 

0.0

 

Cash dividends declared ($1.78 per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(641.9

)

 

 

 

 

 

 

 

(641.9

)

Repurchases of common shares (2)

 

 

(1.5

)

 

 

 

(0.0

)

 

 

 

(6.2

)

 

 

 

(163.0

)

 

 

 

 

 

 

 

(169.2

)

Stock-based compensation costs

 

 

 

 

 

 

 

 

 

 

30.7

 

 

 

 

 

 

 

 

 

 

 

 

30.7

 

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1.8

 

 

 

 

1.8

 

Activity related to equity-based plans

 

 

0.8

 

 

 

 

0.0

 

 

 

 

27.7

 

 

 

 

(20.7

)

 

 

 

 

 

 

 

7.0

 

Balance as of November 30, 2023

 

 

359.8

 

 

$

 

3.6

 

 

$

 

1,678.6

 

 

$

 

2,009.4

 

 

$

 

(167.2

)

 

$

 

3,524.4

 

 

 

 

For the three months ended November 30, 2023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

other

 

 

 

 

 

 

 

Common stock

 

 

paid-in

 

 

Retained

 

 

comprehensive

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

capital

 

 

earnings

 

 

loss

 

 

Total

 

Balance as of August 31, 2023

 

 

361.2

 

 

$

 

3.6

 

 

$

 

1,666.4

 

 

$

 

2,100.9

 

 

$

 

(183.1

)

 

$

 

3,587.8

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

392.7

 

 

 

 

 

 

 

 

392.7

 

Unrealized gains on securities, net of $4.8 million in tax expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

14.8

 

 

 

 

14.8

 

Reclassification adjustment for realized gains on securities, net of $0.0 million in tax expense (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(0.0

)

 

 

 

(0.0

)

Cash dividends declared ($0.89 per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(320.5

)

 

 

 

 

 

 

 

(320.5

)

Repurchases of common shares (2)

 

 

(1.5

)

 

 

 

(0.0

)

 

 

 

(6.2

)

 

 

 

(163.0

)

 

 

 

 

 

 

 

(169.2

)

Stock-based compensation costs

 

 

 

 

 

 

 

 

 

 

14.7

 

 

 

 

 

 

 

 

 

 

 

 

14.7

 

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1.1

 

 

 

 

1.1

 

Activity related to equity-based plans

 

 

0.1

 

 

 

 

0.0

 

 

 

 

3.7

 

 

 

 

(0.7

)

 

 

 

 

 

 

 

3.0

 

Balance as of November 30, 2023

 

 

359.8

 

 

$

 

3.6

 

 

$

 

1,678.6

 

 

$

 

2,009.4

 

 

$

 

(167.2

)

 

$

 

3,524.4

 

 

(1)
Reclassification adjustments out of accumulated other comprehensive loss for realized gains/(losses), 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 January 31, 2024. The purpose of this program is to manage common stock dilution.

 

 

 

See Notes to Consolidated Financial Statements.

 

3

 


Table of Contents

 

 

 

For the six months ended November 30, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

other

 

 

 

 

 

 

 

Common stock

 

 

paid-in

 

 

Retained

 

 

comprehensive

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

capital

 

 

earnings

 

 

loss

 

 

Total

 

Balance as of May 31, 2022

 

 

359.9

 

 

$

 

3.6

 

 

$

 

1,545.9

 

 

$

 

1,669.6

 

 

$

 

(133.9

)

 

$

 

3,085.2

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

739.5

 

 

 

 

 

 

 

 

739.5

 

Unrealized losses on securities, net of $20.0 million in tax benefit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(61.3

)

 

 

 

(61.3

)

Reclassification adjustment for realized gains on securities, net of $0.0 million in tax expense (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(0.1

)

 

 

 

(0.1

)

Cash dividends declared ($1.58 per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(569.6

)

 

 

 

 

 

 

 

(569.6

)

Repurchases of common shares (2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation costs

 

 

 

 

 

 

 

 

 

 

29.7

 

 

 

 

 

 

 

 

 

 

 

 

29.7

 

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3.0

)

 

 

 

(3.0

)

Activity related to equity-based plans

 

 

0.6

 

 

 

 

0.0

 

 

 

 

13.0

 

 

 

 

(28.1

)

 

 

 

 

 

 

 

(15.1

)

Balance as of November 30, 2022

 

 

360.5

 

 

$

 

3.6

 

 

$

 

1,588.6

 

 

$

 

1,811.4

 

 

$

 

(198.3

)

 

$

 

3,205.3

 

 

 

 

For the three months ended November 30, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

other

 

 

 

 

 

 

 

Common stock

 

 

paid-in

 

 

Retained

 

 

comprehensive

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

capital

 

 

earnings

 

 

loss

 

 

Total

 

Balance as of August 31, 2022

 

 

360.4

 

 

$

 

3.6

 

 

$

 

1,568.9

 

 

$

 

1,736.3

 

 

$

 

(171.4

)

 

$

 

3,137.4

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

360.3

 

 

 

 

 

 

 

 

360.3

 

Unrealized losses on securities, net of $10.3 million in tax benefit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(31.8

)

 

 

 

(31.8

)

Reclassification adjustment for realized losses on securities, net of $0.0 million in tax benefit (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

0.0

 

 

 

 

0.0

 

Cash dividends declared ($0.79 per share)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(284.9

)

 

 

 

 

 

 

 

(284.9

)

Repurchases of common shares (2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation costs

 

 

 

 

 

 

 

 

 

 

15.3

 

 

 

 

 

 

 

 

 

 

 

 

15.3

 

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4.9

 

 

 

 

4.9

 

Activity related to equity-based plans

 

 

0.1

 

 

 

 

0.0

 

 

 

 

4.4

 

 

 

 

(0.3

)

 

 

 

 

 

 

 

4.1

 

Balance as of November 30, 2022

 

 

360.5

 

 

$

 

3.6

 

 

$

 

1,588.6

 

 

$

 

1,811.4

 

 

$

 

(198.3

)

 

$

 

3,205.3

 

 

(1)
Reclassification adjustments out of accumulated other comprehensive loss for realized gains/(losses), net of tax, on the sale of 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 January 31, 2024. The purpose of this program is to manage common stock dilution.

 

 

See Notes to Consolidated Financial Statements.

4

 


Table of Contents

 

PAYCHEX, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

In millions

 

 

 

For the six months ended

 

 

 

November 30,

 

 

 

2023

 

 

2022

 

Operating activities

 

 

 

 

 

 

 

 

Net income

 

$

 

811.9

 

 

$

 

739.5

 

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

 

86.1

 

 

 

 

88.3

 

Amortization of premiums and discounts on AFS securities, net

 

 

 

(2.9

)

 

 

 

11.2

 

Amortization of deferred contract costs

 

 

 

115.1

 

 

 

 

107.5

 

Stock-based compensation costs

 

 

 

30.7

 

 

 

 

29.7

 

Benefit from deferred income taxes

 

 

 

(6.4

)

 

 

 

(15.3

)

Provision for credit losses

 

 

 

10.0

 

 

 

 

8.1

 

Net realized losses/(gains) on sales of AFS securities

 

 

 

0.0

 

 

 

 

(0.1

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Interest receivable

 

 

 

0.7

 

 

 

 

(0.9

)

Accounts receivable and PEO unbilled receivables, net

 

 

 

52.9

 

 

 

 

(82.5

)

Prepaid expenses and other current assets

 

 

 

(46.3

)

 

 

 

(43.4

)

Accounts payable and other current liabilities

 

 

 

66.6

 

 

 

 

(11.2

)

Deferred costs

 

 

 

(123.1

)

 

 

 

(122.1

)

Net change in other long-term assets and liabilities

 

 

 

10.1

 

 

 

 

13.8

 

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

 

 

 

(1.1

)

 

 

 

(2.9

)

Net cash provided by operating activities

 

 

 

1,004.3

 

 

 

 

719.7

 

Investing activities

 

 

 

 

 

 

 

 

Purchases of AFS securities

 

 

 

(3,303.7

)

 

 

 

(6,504.9

)

Proceeds from sales and maturities of AFS securities

 

 

 

3,607.0

 

 

 

 

7,631.3

 

Net purchases of short-term accounts receivable

 

 

 

(104.8

)

 

 

 

(33.8

)

Purchases of property and equipment

 

 

 

(79.4

)

 

 

 

(65.9

)

Proceeds from sales of property and equipment

 

 

 

0.0

 

 

 

 

9.7

 

Acquisition of businesses, net of cash acquired

 

 

 

(208.3

)

 

 

 

 

Purchases of other assets, net

 

 

 

(20.5

)

 

 

 

(8.6

)

Net cash (used in)/provided by investing activities

 

 

 

(109.7

)

 

 

 

1,027.8

 

Financing activities

 

 

 

 

 

 

 

 

Net change in client fund obligations

 

 

 

1,332.8

 

 

 

 

(468.7

)

Net change in short-term borrowings

 

 

 

3.8

 

 

 

 

2.0

 

Dividends paid

 

 

 

(642.1

)

 

 

 

(569.3

)

Repurchases of common shares

 

 

 

(169.2

)

 

 

 

 

Activity related to equity-based plans

 

 

 

7.0

 

 

 

 

(15.1

)

Net cash provided by/(used in) financing activities

 

 

 

532.3

 

 

 

 

(1,051.1

)

Net change in cash, restricted cash, and equivalents

 

 

 

1,426.9

 

 

 

 

696.4

 

Cash, restricted cash, and equivalents, beginning of period

 

 

 

2,134.9

 

 

 

 

928.4

 

Cash, restricted cash, and equivalents, end of period

 

$

 

3,561.8

 

 

$

 

1,624.8

 

 

 

 

 

 

 

 

 

Reconciliation of cash, restricted cash, and equivalents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

 

1,363.1

 

 

$

 

1,096.5

 

Restricted cash

 

 

 

47.9

 

 

 

 

68.2

 

Restricted cash and restricted cash equivalents included in funds held for clients

 

 

 

2,150.8

 

 

 

 

460.1

 

Total cash, restricted cash, and equivalents

 

$

 

3,561.8

 

 

$

 

1,624.8

 

 

See Notes to Consolidated Financial Statements.

 

5

 


Table of Contents

 

PAYCHEX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

November 30, 2023

Note A: Description of Business, Basis of Presentation, and Significant Accounting Policies

 

Description of business: Paychex, Inc. and its wholly owned subsidiaries (collectively, the “Company” or “Paychex”) is a leading provider of integrated human capital management (“HCM”) solutions for human resources (“HR”), payroll, benefits, and insurance for small- to medium-sized businesses in the United States (“U.S.”) and parts of Europe. The Company also has operations in India. Paychex, a Delaware corporation formed in 1979, reports as one segment.

 

Basis of presentation: The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to the Quarterly Report on Form 10-Q ("Form 10-Q") and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statement presentation. The consolidated financial statements include the consolidated accounts of the Company with all intercompany transactions eliminated. Certain disclosures are reported as zero balances due to rounding. In the opinion of management, the information furnished herein reflects all adjustments (consisting of items of a normal recurring nature) necessary for a fair statement of the results for the interim period. These consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements and related Notes to Consolidated Financial Statements presented in the Company’s Annual Report on Form 10-K (“Form 10-K”) for the fiscal year ended May 31, 2023 (“fiscal 2023”). Operating results and cash flows for the six months ended November 30, 2023 are not necessarily indicative of the results that may be expected for other interim periods or for the fiscal year ending May 31, 2024 (“fiscal 2024”).

 

Reclassifications: Certain prior year amounts have been reclassified to conform to the current period presentation. These reclassifications had no effect on reported consolidated earnings.

 

Revision to previously issued financial statements: The consolidated statement of cash flows for the six months ended November 30, 2022 includes a revision to previously reported amounts related to the presentation of the cash flows associated with short-term receivables purchased from the Company’s clients under non-recourse arrangements. The revision increased net cash provided by operating activities and net cash used in investing activities by $33.8 million each. Management concluded that this revision was not material to the financial statements of any previously filed annual or interim periods. This revision is reflected in this Form 10-Q and will be reflected in future filings.

 

Restricted cash and restricted cash equivalents: Restricted cash and restricted cash equivalents are recorded at fair value, and consist of cash and cash equivalents, primarily money market securities, included in funds held for clients and cash that is restricted in use to secure commitments for certain workers’ compensation insurance policies.

 

Accounts receivable, net of allowance for credit losses: Accounts receivable balances are shown on the Consolidated Balance Sheets net of the allowance for credit losses of $21.8 million and $20.5 million as of November 30, 2023 and May 31, 2023, respectively. These balances include trade receivables for services provided to clients and receivables purchased from the Company's clients under non-recourse arrangements. Trade receivables were $209.6 million and $287.0 million as of November 30, 2023 and May 31, 2023, respectively. Purchased receivables, at gross, were $894.9 million and $606.8 million as of November 30, 2023 and May 31, 2023, respectively.

 

The Company is exposed to credit losses through the sale of services, payment of client obligations, and collection of purchased receivables. To mitigate this credit risk, the Company has multiple programs in place to assess and continuously monitor each client’s ability to pay for these solutions and support. Credit monitoring programs include, but are not limited to, new client credit reviews, establishing appropriate credit limits, monitoring of credit distressed clients, and early electronic wire and collection procedures. The Company also considers contract terms and conditions, client business type or strategy and may require collateralized asset support or prepayment to mitigate credit risk.

 

Accounts receivable are written off and charged against the allowance for credit losses when the Company has exhausted all collection efforts without success. The Company estimates its credit losses based on historical loss activity adjusted for current economic conditions and reasonable and supportable forecast factors, when applicable. The provision for the allowance for credit losses and accounts written off were not material for the three and six months ended November 30, 2023 and November 30, 2022. No single client had a material impact on total accounts receivable as of November 30, 2023 and May 31, 2023 or service revenue and results of operations for the three and six months ended November 30, 2023 and November 30, 2022.

6

 


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