PRESS RELEASE OF PAYCHEX, INC. DATED OCTOBER 01, 2024
Paychex, Inc. Reports Solid First Quarter Results
Rochester, N.Y. - (October 01, 2024) - Paychex, Inc. (the "Company," "Paychex," "we," "our," or "us") today reported results for the fiscal quarter ended August 31, 2024 (the "first quarter"). Results compared with the same period last year were as follows:
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For the three months ended |
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August 31, |
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August 31, |
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|||||
In millions, except per share amounts |
|
2024 |
|
|
2023 |
|
|
Change(2) |
|||||||
Total revenue |
|
$ |
|
1,318.5 |
|
|
$ |
|
1,286.0 |
|
|
|
3 |
|
% |
Operating income |
|
$ |
|
546.7 |
|
|
$ |
|
536.3 |
|
|
|
2 |
|
% |
Diluted earnings per share |
|
$ |
|
1.18 |
|
|
$ |
|
1.16 |
|
|
|
2 |
|
% |
Adjusted diluted earnings per share(1) |
|
$ |
|
1.16 |
|
|
$ |
|
1.14 |
|
|
|
2 |
|
% |
(1) Adjusted diluted earnings per share is not a United States ("U.S.") generally accepted accounting principle ("GAAP") measure. Please refer to the "Non-GAAP Financial Measures" section on page 3 of this press release for a discussion of non-GAAP measures.
(2) Percentage changes are calculated based on unrounded numbers.
President and Chief Executive Officer, John Gibson commented, "We are off to a solid start in fiscal 2025 with 3% growth in total revenue during the first quarter. Excluding the impact of the expiration of the Employee Retention Tax Credit ("ERTC") program and one less payroll processing day, revenue growth was 7%. Despite these headwinds, we delivered earnings per share growth in the first quarter through strong expense discipline."
Mr. Gibson also noted, "Small and mid-sized businesses remain resilient as the U.S. labor market gradually returns to its pre-pandemic level and wage inflation continues to moderate. We continue to invest in our go to market capabilities and products to drive innovation to meet the realities of the post-pandemic marketplace. We are excited to announce the introduction of several new products: Paychex Flex® Engage, Paychex Flex Perks, and Paychex Recruiting Copilot. These digital and artificial intelligence ("AI") driven solutions are designed to help our clients attract, retain, and engage their most critical asset, their workforce, and will strengthen our ability to achieve our mission to help businesses succeed."
First Quarter Business Highlights
Total revenue increased to $1.3 billion for the first quarter, growth of 3% over the prior year period. Highlights as compared with the corresponding prior year period are as follows:
1
Total expenses increased 3% to $771.8 million for the first quarter primarily due to the following:
Operating income grew 2% to $546.7 million for the first quarter. Operating margin (operating income as a percentage of total revenue) was 41.5% for the first quarter compared to 41.7% for the prior year period. Operating income was impacted by the expiration of the ERTC program and one less payroll processing day as compared with the prior year quarter.
Other income, net decreased 19% to $10.4 million for the first quarter primarily as a result of lower average investment balances on our corporate investments.
Our effective income tax rate was 23.3% for the first quarter compared to 23.7% for the prior year period. Both periods were impacted by the recognition of net discrete tax benefits related to employee stock-based compensation payments.
Diluted earnings per share increased 2% to $1.18 per share and adjusted diluted earnings per share(1) increased 2% to $1.16 for the first quarter.
(1) Adjusted diluted earnings per share is not a U.S. GAAP measure. Please refer to the "Non-GAAP Financial Measures" section on page 3 of this press release for a discussion of non-GAAP measures.
Financial Position and Liquidity
Our financial position and cash flow generation remained strong during the first three months of the fiscal year. As of August 31, 2024, we had:
Return to Stockholders During the First Quarter
2
Non-GAAP Financial Measures
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For the three months ended |
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August 31, |
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August 31, |
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$ in millions |
|
2024 |
|
|
2023 |
|
|
Change |
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Net income |
|
$ |
|
427.4 |
|
|
$ |
|
419.2 |
|
|
|
2 |
|
% |
Non-GAAP adjustments: |
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|
|
|
|
|
|
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|||
Excess tax benefits related to employee stock-based compensation payments(1) |
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|
|
(6.2 |
) |
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(4.1 |
) |
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|
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Adjusted net income |
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$ |
|
421.2 |
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|
$ |
|
415.1 |
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|
|
1 |
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% |
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|
|
|
|
|
|
|
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|||
Diluted earnings per share(2) |
|
$ |
|
1.18 |
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|
$ |
|
1.16 |
|
|
|
2 |
|
% |
Non-GAAP adjustments: |
|
|
|
|
|
|
|
|
|
|
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|
|||
Excess tax benefits related to employee stock-based compensation payments(1) |
|
|
|
(0.02 |
) |
|
|
|
(0.01 |
) |
|
|
|
|
|
Adjusted diluted earnings per share |
|
$ |
|
1.16 |
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|
$ |
|
1.14 |
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|
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2 |
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% |
|
|
|
|
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|
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Net income |
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$ |
|
427.4 |
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$ |
|
419.2 |
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|
|
2 |
|
% |
Non-GAAP adjustments: |
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|
|
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Interest income, net |
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(10.3 |
) |
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|
|
(12.1 |
) |
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|
|
|
|
Income taxes |
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|
|
129.7 |
|
|
|
|
129.9 |
|
|
|
|
|
|
Depreciation and amortization expense |
|
|
|
39.0 |
|
|
|
|
41.2 |
|
|
|
|
|
|
Total non-GAAP adjustments |
|
|
|
158.4 |
|
|
|
|
159.0 |
|
|
|
|
|
|
EBITDA |
|
$ |
|
585.8 |
|
|
$ |
|
578.2 |
|
|
|
1 |
|
% |
(1) Net tax windfall benefits related to employee stock-based compensation payments recognized in income taxes. This item is subject to volatility and will vary based on employee decisions on exercising employee stock options and fluctuations in our stock price, neither of which is within the control of management.
(2) The calculation of the impact of non-GAAP adjustments on diluted earnings per share is performed on each line independently. The table may not add down by +/- $0.01 due to rounding.
In addition to reporting net income and diluted earnings per share, which are U.S. GAAP measures, we present adjusted net income, adjusted diluted earnings per share, and earnings before interest, taxes, depreciation, and amortization ("EBITDA"), which are non-GAAP measures. We believe these additional measures are indicators of the performance of our core business operations period over period. Adjusted net income, adjusted diluted earnings per share, and EBITDA are not calculated through the application of U.S. GAAP and are not required forms of disclosure by the Securities and Exchange Commission ("SEC"). As such, they should not be considered a substitute for the U.S. GAAP measures of net income, and diluted earnings per share, and, therefore, they should not be used in isolation but in conjunction with the U.S. GAAP measures. The use of any non-GAAP measure may produce results that vary from the U.S. GAAP measure and may not be comparable to a similarly defined non-GAAP measure used by other companies.
3
Business Outlook
Our business outlook for the fiscal year ending May 31, 2025 ("fiscal 2025") incorporates current assumptions and market conditions. Changes in the macroeconomic environment could alter our guidance. With consideration of these impacts, we have updated our business outlook as follows:
Corporate Responsibility
As part of what it means to be Paychex, we are focusing our corporate responsibility efforts on actions we can take to create positive impact. To learn more about our latest initiatives, please visit https://www.paychex.com/corporate/corporate-responsibility. The information available on our website is not a part of, and is not incorporated into, this press release.
Quarterly Report on Form 10-Q ("Form 10-Q")
We anticipate filing our Form 10-Q for the first quarter within the next day, and it will be available at https://investor.paychex.com. This press release should be read in conjunction with the Form 10-Q and the related Notes to Consolidated Financial Statements and Management's Discussion and Analysis of Financial Condition and Results of Operations contained in that Form 10-Q.
Webcast Details
Interested parties may access the webcast of our Earnings Release Conference Call, scheduled for October 01, 2024, at 9:30 a.m. Eastern Time, at https://investor.paychex.com. The webcast will be archived for approximately 90 days. Our news releases, current financial information, SEC filings, and investor presentations are also accessible at https://investor.paychex.com.
Contacts
Investor Relations: |
Media Inquiries: |
Jason Harbes, Director, Investor Relations |
Tracy Volkmann |
Phil Nicosia, Manager, Investor Relations |
Manager, Public Relations |
(800) 828-4411 |
(585) 387-6705 |
investors@paychex.com |
tvolkmann@paychex.com |
About Paychex
Paychex, Inc. (Nasdaq: PAYX) is an industry-leading HCM company delivering a full suite of technology and advisory services in human resources, employee benefit solutions, insurance, and payroll. The company serves over 745,000 customers in the U.S. and Europe and pays one out of every 12 American private sector employees. The more than 16,000 people at Paychex are committed to helping businesses succeed and building thriving communities where they work and live. To learn more, visit www.paychex.com.
4
Cautionary Note Regarding Forward-Looking Statements
Certain written statements in this press release may contain, and members of management may from time to time make or discuss statements which constitute, "forward-looking statements" within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by such words and phrases as "expect," "outlook," "will," guidance," "projections," "anticipate," "believe," "could," "design," "may," "possible," "potential," "should" and other similar words or phrases. Forward-looking statements include, without limitation, all matters that are not historical facts. Examples of forward-looking statements include, among others, statements we make regarding operating performance, events, or developments that we expect or anticipate will occur in the future, including statements relating to our outlook, revenue growth, earnings, earnings-per-share growth, and similar projections.
Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on our current beliefs, expectations, and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy, and other future conditions. Because forward-looking statements relate to the future, they are subject to known and unknown uncertainties, risks, changes in circumstances, and other factors that are difficult to predict, many of which are outside our control. Our actual performance and outcomes, including without limitation, our actual results and financial condition, may differ materially from those indicated in or suggested by the forward-looking statements. Therefore, you should not rely on any of these forward-looking statements. Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include, among others, the following:
5
Any of these factors, as well as such other factors as discussed in our SEC filings, could cause our actual results to differ materially from our anticipated results. The information provided in this document is based upon the facts and circumstances known as of the date of this press release, and any forward-looking statements made by us in this document speak only as of the date on which they are made. Except as required by law, we undertake no obligation to update these forward-looking statements after the date of issuance of this press release to reflect events or circumstances after such date, or to reflect the occurrence of unanticipated events.
6
PAYCHEX, INC.
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(In millions, except per share amounts)
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For the three months ended |
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August 31, |
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August 31, |
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2024 |
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2023 |
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Change(2) |
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Revenue: |
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|
|
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|||
Management Solutions |
|
$ |
|
961.7 |
|
|
$ |
|
955.5 |
|
|
|
1 |
|
% |
PEO and Insurance Solutions |
|
|
|
319.3 |
|
|
|
|
297.8 |
|
|
|
7 |
|
% |
Total service revenue |
|
|
|
1,281.0 |
|
|
|
|
1,253.3 |
|
|
|
2 |
|
% |
Interest on funds held for clients(1) |
|
|
|
37.5 |
|
|
|
|
32.7 |
|
|
|
15 |
|
% |
Total revenue |
|
|
|
1,318.5 |
|
|
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|
1,286.0 |
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|
|
3 |
|
% |
Expenses: |
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|
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|
|||
Cost of service revenue |
|
|
|
380.0 |
|
|
|
|
360.2 |
|
|
|
5 |
|
% |
Selling, general and administrative expenses |
|
|
|
391.8 |
|
|
|
|
389.5 |
|
|
|
1 |
|
% |
Total expenses |
|
|
|
771.8 |
|
|
|
|
749.7 |
|
|
|
3 |
|
% |
Operating income |
|
|
|
546.7 |
|
|
|
|
536.3 |
|
|
|
2 |
|
% |
Other income, net(1) |
|
|
|
10.4 |
|
|
|
|
12.8 |
|
|
|
(19 |
) |
% |
Income before income taxes |
|
|
|
557.1 |
|
|
|
|
549.1 |
|
|
|
1 |
|
% |
Income taxes |
|
|
|
129.7 |
|
|
|
|
129.9 |
|
|
|
— |
|
% |
Net income |
|
$ |
|
427.4 |
|
|
$ |
|
419.2 |
|
|
|
2 |
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Basic earnings per share |
|
$ |
|
1.19 |
|
|
$ |
|
1.16 |
|
|
|
3 |
|
% |
Diluted earnings per share |
|
$ |
|
1.18 |
|
|
$ |
|
1.16 |
|
|
|
2 |
|
% |
Weighted-average common shares outstanding |
|
|
|
360.1 |
|
|
|
|
360.8 |
|
|
|
|
|
|
Weighted-average common shares outstanding, assuming dilution |
|
|
|
361.9 |
|
|
|
|
362.8 |
|
|
|
|
|
(1) Further information on interest on funds held for clients and other income, net, and the short- and long-term effects of changing interest rates can be found in our filings with the SEC, including our Quarterly Reports on Form 10-Q and our Annual Report on Form 10-K, as applicable, under the caption "Management’s Discussion and Analysis of Financial Condition and Results of Operations" and subheadings "Results of Operations" and "Market Risk Factors." These filings are accessible at https://investor.paychex.com.
(2) Percentage changes are calculated based on unrounded numbers.
n/m – not meaningful
7
PAYCHEX, INC.
CONSOLIDATED BALANCE SHEETS (Unaudited)
(In millions, except per share amounts)
|
|
August 31, |
|
|
May 31, |
|
||||
|
|
2024 |
|
|
2024 |
|
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ASSETS |
|
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|
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||
Cash and cash equivalents |
|
$ |
|
1,459.6 |
|
|
$ |
|
1,468.9 |
|
Restricted cash |
|
|
|
54.9 |
|
|
|
|
47.8 |
|
Corporate investments |
|
|
|
38.4 |
|
|
|
|
33.9 |
|
Interest receivable |
|
|
|
22.9 |
|
|
|
|
23.3 |
|
Accounts receivable, net of allowance for credit losses |
|
|
|
1,126.2 |
|
|
|
|
1,059.6 |
|
PEO unbilled receivables, net of advance collections |
|
|
|
553.8 |
|
|
|
|
542.4 |
|
Prepaid income taxes |
|
|
|
— |
|
|
|
|
47.5 |
|
Prepaid expenses and other current assets |
|
|
|
342.4 |
|
|
|
|
321.9 |
|
Current assets before funds held for clients |
|
|
|
3,598.2 |
|
|
|
|
3,545.3 |
|
Funds held for clients |
|
|
|
3,763.2 |
|
|
|
|
3,706.2 |
|
Total current assets |
|
|
|
7,361.4 |
|
|
|
|
7,251.5 |
|
Long-term corporate investments |
|
|
|
— |
|
|
|
|
3.7 |
|
Property and equipment, net of accumulated depreciation |
|
|
|
417.4 |
|
|
|
|
411.7 |
|
Operating lease right-of-use assets, net of accumulated amortization |
|
|
|
49.5 |
|
|
|
|
46.9 |
|
Intangible assets, net of accumulated amortization |
|
|
|
187.7 |
|
|
|
|
194.5 |
|
Goodwill |
|
|
|
1,884.9 |
|
|
|
|
1,882.7 |
|
Long-term deferred costs |
|
|
|
471.0 |
|
|
|
|
477.1 |
|
Other long-term assets |
|
|
|
117.2 |
|
|
|
|
115.0 |
|
Total assets |
|
$ |
|
10,489.1 |
|
|
$ |
|
10,383.1 |
|
|
|
|
|
|
|
|
|
|
||
LIABILITIES |
|
|
|
|
|
|
|
|
||
Accounts payable |
|
$ |
|
80.9 |
|
|
$ |
|
104.3 |
|
Accrued corporate compensation and related items |
|
|
|
120.8 |
|
|
|
|
135.0 |
|
Accrued worksite employee compensation and related items |
|
|
|
677.2 |
|
|
|
|
662.4 |
|
Short-term borrowings |
|
|
|
18.9 |
|
|
|
|
18.7 |
|
Accrued income taxes |
|
|
|
73.5 |
|
|
|
|
— |
|
Deferred revenue |
|
|
|
50.3 |
|
|
|
|
50.2 |
|
Other current liabilities |
|
|
|
478.7 |
|
|
|
|
469.8 |
|
Current liabilities before client fund obligations |
|
|
|
1,500.3 |
|
|
|
|
1,440.4 |
|
Client fund obligations |
|
|
|
3,843.6 |
|
|
|
|
3,868.7 |
|
Total current liabilities |
|
|
|
5,343.9 |
|
|
|
|
5,309.1 |
|
Accrued income taxes |
|
|
|
108.6 |
|
|
|
|
102.6 |
|
Deferred income taxes |
|
|
|
95.1 |
|
|
|
|
86.0 |
|
Long-term borrowings, net of debt issuance costs |
|
|
|
798.7 |
|
|
|
|
798.6 |
|
Operating lease liabilities |
|
|
|
49.4 |
|
|
|
|
49.0 |
|
Other long-term liabilities |
|
|
|
243.0 |
|
|
|
|
236.8 |
|
Total liabilities |
|
|
|
6,638.7 |
|
|
|
|
6,582.1 |
|
|
|
|
|
|
|
|
|
|
||
STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
||
Common stock, $0.01 par value; Authorized: 600.0 shares; |
|
|
|
3.6 |
|
|
|
|
3.6 |
|
Additional paid-in capital |
|
|
|
1,761.7 |
|
|
|
|
1,729.5 |
|
Retained earnings |
|
|
|
2,165.4 |
|
|
|
|
2,213.0 |
|
Accumulated other comprehensive loss |
|
|
|
(80.3 |
) |
|
|
|
(145.1 |
) |
Total stockholders’ equity |
|
|
|
3,850.4 |
|
|
|
|
3,801.0 |
|
Total liabilities and stockholders’ equity |
|
$ |
|
10,489.1 |
|
|
$ |
|
10,383.1 |
|
8
PAYCHEX, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In millions)
|
|
For the three months ended |
|
|||||||
|
|
August 31, |
|
|
August 31, |
|
||||
|
|
2024 |
|
|
2023 (1) |
|
||||
OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|
||
Net income |
|
$ |
|
427.4 |
|
|
$ |
|
419.2 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
||
Depreciation and amortization |
|
|
|
39.0 |
|
|
|
|
41.2 |
|
Amortization of premiums and discounts on available-for-sale ("AFS") securities, net |
|
|
|
(2.8 |
) |
|
|
|
(1.4 |
) |
Amortization of deferred contract costs |
|
|
|
58.5 |
|
|
|
|
57.2 |
|
Stock-based compensation costs |
|
|
|
16.5 |
|
|
|
|
16.0 |
|
Benefit from deferred income taxes |
|
|
|
(11.0 |
) |
|
|
|
(3.2 |
) |
Provision for credit losses |
|
|
|
7.5 |
|
|
|
|
4.3 |
|
Net realized (gains)/losses on sales of AFS securities |
|
|
|
(0.0 |
) |
|
|
|
0.0 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
||
Interest receivable |
|
|
|
0.4 |
|
|
|
|
1.0 |
|
Accounts receivable and PEO unbilled receivables, net |
|
|
|
(36.4 |
) |
|
|
|
72.4 |
|
Prepaid expenses and other current assets |
|
|
|
26.3 |
|
|
|
|
38.1 |
|
Accounts payable and other current liabilities |
|
|
|
65.6 |
|
|
|
|
104.4 |
|
Deferred costs |
|
|
|
(51.6 |
) |
|
|
|
(62.2 |
) |
Net change in other long-term assets and liabilities |
|
|
|
8.4 |
|
|
|
|
6.6 |
|
Net change in operating lease right-of-use assets and liabilities |
|
|
|
(1.7 |
) |
|
|
|
(0.6 |
) |
Net cash provided by operating activities |
|
|
|
546.1 |
|
|
|
|
693.0 |
|
INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
||
Purchases of AFS securities |
|
|
|
(1,029.7 |
) |
|
|
|
(1,923.5 |
) |
Proceeds from sales and maturities of AFS securities |
|
|
|
1,013.0 |
|
|
|
|
2,200.7 |
|
Net purchases of short-term accounts receivable |
|
|
|
(45.1 |
) |
|
|
|
(37.2 |
) |
Purchases of property and equipment |
|
|
|
(35.6 |
) |
|
|
|
(38.7 |
) |
Acquisition of businesses, net of cash acquired |
|
|
|
— |
|
|
|
|
(208.0 |
) |
Purchases of other assets, net |
|
|
|
(12.6 |
) |
|
|
|
(6.5 |
) |
Net cash used in investing activities |
|
|
|
(110.0 |
) |
|
|
|
(13.2 |
) |
FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
||
Net change in client fund obligations |
|
|
|
(25.1 |
) |
|
|
|
1,383.5 |
|
Net change in short-term borrowings |
|
|
|
— |
|
|
|
|
3.8 |
|
Dividends paid |
|
|
|
(353.4 |
) |
|
|
|
(321.9 |
) |
Repurchases of common shares |
|
|
|
(104.0 |
) |
|
|
|
— |
|
Activity related to equity-based plans |
|
|
|
(2.5 |
) |
|
|
|
4.0 |
|
Net cash (used in)/provided by financing activities |
|
|
|
(485.0 |
) |
|
|
|
1,069.4 |
|
Net change in cash, restricted cash, and equivalents |
|
|
|
(48.9 |
) |
|
|
|
1,749.2 |
|
Cash, restricted cash, and equivalents, beginning of period |
|
|
|
1,897.0 |
|
|
|
|
2,134.9 |
|
Cash, restricted cash, and equivalents, end of period |
|
$ |
|
1,848.1 |
|
|
$ |
|
3,884.1 |
|
|
|
|
|
|
|
|
|
|
||
Reconciliation of cash, restricted cash, and equivalents |
|
|
|
|
|
|
|
|
||
Cash and cash equivalents |
|
$ |
|
1,459.6 |
|
|
$ |
|
1,645.9 |
|
Restricted cash |
|
|
|
54.9 |
|
|
|
|
49.8 |
|
Restricted cash and restricted cash equivalents included in funds held for clients |
|
|
|
333.6 |
|
|
|
|
2,188.4 |
|
Total cash, restricted cash, and equivalents |
|
$ |
|
1,848.1 |
|
|
$ |
|
3,884.1 |
|
(1) The consolidated statement of cash flows for the three months ended August 31, 2023 includes a revision to previously reported amounts related to the presentation of the cash flows associated with the short-term receivables purchased from the Company’s clients under non-recourse arrangements. The revision increased net cash provided by operating activities and decreased net cash provided by investing activities by $37.2 million each.
9