Second Quarter Highlights and Financial Results Forward Looking Statements 2 | --- | |---------------------------------------| | | | | | An industry-leading human capital | | management ("HCM") company | | delivering a full suite of technology | | and advisory services in human | | resources, employee benefit | | solutions, insurance and payroll | | for small- to medium-sized | | businesses. | • Leading-edge technology platform backed by HR and compliance expertise • ~740,000 clients(1) 3 (1) As of May 31, ...

[PART I. FINANCIAL INFORMATION](index=3&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) For the three months ended August 31, 2023, Paychex reported total revenue of **$1.286 billion**, an increase of **7%** year-over-year, and net income of **$419.2 million**, an **11%** increase [Consolidated Statements of Income and Comprehensive Income](index=3&type=section&id=Consolidated%20Statements%20of%20Income%20and%20Comprehensive%20Income) Total revenue grew **7%** year-over-year to **$1.286 billion**, driven by a **5.5%** increase in total service revenue and an **82.7%** surge in interest on funds held for clients Revenue and Income Performance | Metric | Q1 2024 (ended Aug 31, 2023) | Q1 2023 (ended Aug 31, 2022) | YoY Change | | :--- | :--- | :--- | :--- | | **Total Revenue** | **$1,286.0 M** | **$1,206.2 M** | **+6.6%** | | Management Solutions | $955.5 M | $905.5 M | +5.5% | | PEO and Insurance Solutions | $297.8 M | $282.8 M | +5.3% | | Interest on funds held for clients | $32.7 M | $17.9 M | +82.7% | | **Operating Income** | **$536.3 M** | **$495.6 M** | **+8.2%** | | **Net Income** | **$419.2 M** | **$379.2 M** | **+10.5%** | | **Diluted EPS** | **$1.16** | **$1.05** | **+10.5%** | [Consolidated Balance Sheets](index=4&type=section&id=Consolidated%20Balance%20Sheets) As of August 31, 2023, total assets were **$12.2 billion**, up from **$10.5 billion** at May 31, 2023, primarily due to a significant rise in funds held for clients Balance Sheet Summary | Balance Sheet Item | Aug 31, 2023 (in millions) | May 31, 2023 (in millions) | Change | | :--- | :--- | :--- | :--- | | **Total Assets** | **$12,200.0** | **$10,546.4** | **+$1,653.6** | | Cash and cash equivalents | $1,645.9 | $1,222.0 | +$423.9 | | Funds held for clients | $5,470.7 | $4,118.8 | +$1,351.9 | | Goodwill | $1,881.4 | $1,834.0 | +$47.4 | | **Total Liabilities** | **$8,612.2** | **$7,053.2** | **+$1,559.0** | | Client fund obligations | $5,677.5 | $4,294.0 | +$1,383.5 | | **Total Stockholders' Equity** | **$3,587.8** | **$3,493.2** | **+$94.6** | [Consolidated Statements of Cash Flows](index=6&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Net cash provided by operating activities was **$655.8 million** for the three months ended August 31, 2023, a significant increase from the prior year, while investing activities decreased sharply due to a business acquisition Cash Flow Summary | Cash Flow Activity (in millions) | Three months ended Aug 31, 2023 | Three months ended Aug 31, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $655.8 | $364.3 | | Net cash provided by investing activities | $24.0 | $1,223.1 | | Net cash provided by/(used in) financing activities | $1,069.4 | $(809.7) | | **Net change in cash, restricted cash, and equivalents** | **$1,749.2** | **$777.7** | - The company completed an acquisition of businesses for **$208.0 million**, net of cash acquired, during the quarter[16](index=16&type=chunk) [Notes to Consolidated Financial Statements](index=7&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes detail accounting policies, disaggregate service revenue, provide acquisition specifics, and analyze the investment portfolio, including **$3.3 billion** in AFS securities with **$206.9 million** in net unrealized losses - Paychex is a leading provider of integrated human capital management (HCM) solutions for small- to medium-sized businesses in the U.S. and parts of Europe[18](index=18&type=chunk) - Effective July 31, 2023, the company acquired substantially all net assets of Alterna Capital Solutions LLC for approximately **$223.7 million**, including a base purchase price of **$94.8 million** and settlement of debt totaling **$128.9 million**, resulting in **$46.5 million** in tax-deductible goodwill[48](index=48&type=chunk) - As of August 31, 2023, the company's Available-for-Sale (AFS) securities portfolio had a fair value of **$3.3 billion** and carried net unrealized losses of **$206.9 million**, attributed to changes in interest rates rather than credit risk, with no intent to sell until cost recovery or maturity[55](index=55&type=chunk)[56](index=56&type=chunk) - The effective income tax rate for the quarter was **23.7%**, compared to **22.9%** for the same period last year, with both periods impacted by excess tax benefits from employee stock-based compensation[78](index=78&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=21&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management reported strong Q1 results with total revenue up **7%** year-over-year, driven by client growth, higher revenue per client, and an **83%** increase in interest on funds held for clients, leading to an **8%** rise in operating income [Results of Operations](index=23&type=section&id=Results%20of%20Operations) Total revenue increased **7%** to **$1.286 billion**, with Management Solutions growing **6%** and PEO and Insurance Solutions rising **5%**, while interest on funds held for clients surged **83%** due to higher rates Revenue Performance (Q1 2024 vs Q1 2023) | Revenue Stream | Q1 2024 (in millions) | Q1 2023 (in millions) | YoY Change | | :--- | :--- | :--- | :--- | | Management Solutions | $955.5 | $905.5 | +6% | | PEO and Insurance Solutions | $297.8 | $282.8 | +5% | | **Total service revenue** | **$1,253.3** | **$1,188.3** | **+5%** | | Interest on funds held for clients | $32.7 | $17.9 | +83% | | **Total revenue** | **$1,286.0** | **$1,206.2** | **+7%** | - Growth in Management Solutions was driven by an increase in the number of clients and client employees, higher revenue per client from price realization, and strong demand for HR Solutions, retirement, and time and attendance solutions[94](index=94&type=chunk) Expense Breakdown (Q1 2024 vs Q1 2023) | Expense Category | Q1 2024 (in millions) | Q1 2023 (in millions) | YoY Change | | :--- | :--- | :--- | :--- | | Compensation-related expenses | $455.3 | $426.6 | +7% | | PEO direct insurance costs | $110.2 | $104.5 | +5% | | Depreciation and amortization | $41.2 | $44.0 | -6% | | Other expenses | $143.0 | $135.5 | +6% | | **Total expenses** | **$749.7** | **$710.6** | **+5%** | - Operating margin improved to **41.7%** in Q1 2024 from **41.1%** in Q1 2023, as revenue growth outpaced the increase in expenses[100](index=100&type=chunk) [Liquidity and Capital Resources](index=26&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains a strong financial position with **$1.7 billion** in cash and corporate investments, robust operating cash flow of **$655.8 million**, and access to **$2.0 billion** in credit facilities - As of August 31, 2023, the company had cash, restricted cash, and total corporate investments of **$1.7 billion**[107](index=107&type=chunk) - The company maintains committed and unsecured credit facilities totaling **$2.0 billion**, with **$1.986 billion** available as of August 31, 2023[109](index=109&type=chunk)[110](index=110&type=chunk) - Dividends paid increased **13%** year-over-year to **$321.9 million**, reflecting a dividend increase from **$0.79** to **$0.89** per share[93](index=93&type=chunk)[124](index=124&type=chunk) [Market Risk Factors](index=30&type=section&id=Market%20Risk%20Factors) The company is primarily exposed to interest rate risk, which impacts earnings from its **$5.5 billion** portfolio of funds held for clients and corporate investments, with rising rates generally benefiting earnings - The average interest rate earned on the combined investment portfolio was **3.7%** for the quarter, up from **1.7%** in the prior year period[127](index=127&type=chunk) - A **25-basis-point** change in short-term interest rates is estimated to impact after-tax earnings by approximately **$4.0 million to $4.5 million** over a twelve-month period[132](index=132&type=chunk) - A hypothetical **25-basis-point** increase in longer-term interest rates would decrease the fair value of the AFS securities portfolio by approximately **$25.0 million**, which would be recorded in stockholders' equity[135](index=135&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=32&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section incorporates by reference the market risk disclosures detailed in the 'Market Risk Factors' section within Item 2 - The report refers to the 'Market Risk Factors' section in the MD&A for disclosures about market risk[142](index=142&type=chunk) [Item 4. Controls and Procedures](index=32&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of August 31, 2023, with no material changes to internal control over financial reporting during the quarter - The Principal Executive Officer and Principal Financial Officer concluded that as of August 31, 2023, the company's disclosure controls and procedures were effective at a reasonable assurance level[144](index=144&type=chunk) - No changes in internal control over financial reporting occurred during the quarter that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[145](index=145&type=chunk) [PART II. OTHER INFORMATION](index=33&type=section&id=PART%20II.%20OTHER%20INFORMATION) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=33&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company did not repurchase any common stock during the first quarter, with **$327.1 million** remaining available under the current share repurchase program expiring January 31, 2024 - No shares were repurchased during the three months ended August 31, 2023[146](index=146&type=chunk) - **$327.1 million** remains available for share repurchases under the existing program, which expires January 31, 2024[146](index=146&type=chunk) [Item 5. Other Information](index=33&type=section&id=Item%205.%20Other%20Information) During the quarter ended August 31, 2023, no directors or officers adopted or terminated any Rule 10b5-1 trading plans or other non-Rule 10b5-1 trading arrangements for company securities - No directors or officers adopted or terminated a Rule 10b5-1 trading plan or other non-Rule 10b5-1 trading arrangement during the quarter[147](index=147&type=chunk) [Item 6. Exhibits](index=33&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including certifications by the CEO and CFO pursuant to the Sarbanes-Oxley Act of 2002 and Inline XBRL data files - Lists various exhibits filed with the report, including management compensation plans and officer certifications[148](index=148&type=chunk)

Financial Data and Key Metrics - Total revenue increased 7% to $1.3 billion in Q1 FY24 [107] - Adjusted diluted earnings per share grew 11% to $1.14 [133] - Operating income increased 8% to $536 million, with an operating margin of 41.7%, a 60 basis point improvement YoY [13] - Cash flows from operations were $656 million, driven by net income and changes in working capital [110] - Interest on funds held for clients increased 83% to $33 million due to higher average interest rates [213] Business Line Performance - Management Solutions revenue increased 6% to $956 million, driven by higher client numbers, product penetration, and HR ancillary services [12] - PEO and Insurance Solutions revenue increased 5% to $298 million, driven by higher revenue per client and average worksite employees [132] - The company saw strong demand for HR outsourcing solutions, with positive trends in client retention and HR outsourcing worksite employee retention [128] Market and Strategic Direction - The company is leveraging AI tools to upgrade ASO clients to PEO products, with the program showing results in Q1 [1] - Paychex acquired a small company to help small business clients manage working capital challenges, aligning with its Paychex Advance business [15] - The company is focusing on digital payroll and HR advisory solutions, with strong demand for its HR technology and advisory services [129] - Paychex is recognized as a leader in HR technology and has won multiple awards for innovation and service [105][185] Management Commentary on Operating Environment and Future Outlook - The company expects ERTC revenue to be a slight tailwind in the first half of FY24 but a headwind in the second half as the program ends [8] - The macroeconomic environment remains stable, with no material changes expected, though uncertainty around interest rates persists [16] - Paychex is confident in its back-half performance, with strong demand indicators and a stable competitive environment [47][190] Other Important Information - The company launched a series of reports, including an annual report, ESG report, and client impact report, available on its Investor Relations website [19] - Paychex has over 200 AI models in use, leveraging its vast data assets to drive internal efficiencies and provide actionable insights to clients [104][130] - The company paid $322 million in dividends during Q1 and has a 12-month rolling return on equity of 47% [135] Q&A Session Summary Question: ASO to PEO Transition Dynamics [122] - The number of clients transitioning from ASO to PEO in Q1 was nearly 2x compared to the prior year, with strong PEO growth both within and outside the base [35] Question: ERTC Revenue Impact [39] - The IRS pause in ERTC processing is not expected to impact the company's ability to provide the service, though clients may experience delays in receiving funds [27] Question: Acquisition Rationale [163] - The acquisition aligns with Paychex's strategy to address small business working capital challenges, particularly in a tightening credit environment [46][166] Question: PEO Insurance Attachment Rates [160] - The company has improved its PEO insurance offerings through analytics, technology, and expanded product choices, leading to better adoption rates [161] Question: AI and Data Utilization [225] - Paychex has been using AI for over a decade and is leveraging large datasets to enhance sales, service, and client insights, with significant improvements in close rates and predictive analytics [255][256] Question: SMB Bankruptcy Trends [63] - Bankruptcy rates are trending toward normalized levels, with an uptick in new business starts in Q1 [51][210] Question: SECURE Act 2.0 Impact [21] - The SECURE Act 2.0 is expected to sustain double-digit growth in the retirement business by encouraging small businesses to offer 401(k) plans [189] Question: Free Cash Flow Growth [62] - Free cash flow growth in Q1 was influenced by timing, with operating cash flows expected to moderate in line with net income growth for the rest of the year [50]

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 _________________________________________ FORM 10-K _________________________________________ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended May 31, 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 ...

Financial Data and Key Metrics - Total revenue grew 9% for the full year, reaching over $5 billion, a significant milestone for the company [6] - Adjusted diluted earnings per share grew 13% to $4.27, and operating margins finished at 41% [7] - Interest on funds held for clients increased 69% to $25 million, primarily due to higher average interest rates [24] - Cash flow from operations was $1.7 billion for the fiscal year, an increase of 13% from the prior year [29] Business Line Data and Key Metrics - HR solutions and retirement services showed double-digit growth, with strong demand for HR outsourcing solutions [9][10] - PEO and Insurance Solutions revenue increased 5% to $300 million, driven by higher revenue per client and growth in average worksite employees [23] - Management solutions revenue increased 7% to over $900 million, driven by additional product penetration and price realization [21] Market Data and Key Metrics - Client retention was impacted by higher losses due to out-of-business issues, mainly in newly formed businesses and financial distress in lower revenue small clients [10] - Revenue retention finished the year near record levels, with a focus on retaining and increasing share of wallet with high-value customer segments [9] - The SMB credit environment has continued to drive demand for the employee retention tax credit service, contributing approximately 1% to 2% to total revenue growth for the full year [14][22] Company Strategy and Industry Competition - The company is well-positioned to capitalize on the growing expectations of retirement plans as a core benefit offering for small and midsize businesses, driven by the SECURE Act 2.0 and state mandates [13] - Paychex Flex earned an HR Tech Award for Best Small and Midsized Business-focused Solutions in the Core HR category for the fourth consecutive year, reinforcing the competitive strength of its technology solutions [15] - The company continues to focus on developing leading customer experiences that combine technology, advisory capabilities, and partnerships to deliver superior value to customers [17] Management Commentary on Operating Environment and Future Outlook - The company expects total revenue growth in the range of 6% to 7% for fiscal year 2024, with operating income margin expected to be in the range of 41% to 42% [33] - Management solutions are expected to grow in the range of 5% to 6%, while PEO and Insurance Solutions are expected to grow in the range of 6% to 9% [32] - The company anticipates that the ERTC service, which has been a tailwind, will become a moderate headwind in fiscal year 2024, especially in the back half of the year [22] Other Important Information - The company paid out a total of $1.2 billion in dividends during fiscal 2023, representing 70% of net income [30] - The 12-month rolling return on equity was a stellar 48%, indicating strong financial performance [31] - The company has been consistently recognized as one of the world's most admired, most ethical, and most innovative companies, and has been ranked as one of the best places to work for diversity, women, and employee development [16] Summary of Q&A Session Question: Pricing Environment - The company is in a steady state regarding pricing, with no major shifts expected. The value of products and services is recognized by customers, and the company has pricing power within its customer base [42] Question: Client Retention - Client retention is stabilizing, with near-record retention levels overall. The company focuses on high-value customer segments, and while some losses were expected due to new business starts, the retention levels are back to pre-pandemic levels [44][45] Question: Macro Trends and Client Groups - The company has not seen anything out of the norm in terms of macro trends. The hospitality sector, which lagged during the recession, has made a strong comeback in the back half of the fiscal year [48] Question: Float Guidance and Interest Rates - The company expects a couple of rate increases in the first half of calendar year 2024, followed by rate decreases in the second half. The portfolio is positioned to mitigate the impact of potential rate decreases [50] Question: Bookings and Product Demand - The company saw strong demand in the fourth quarter, with HR solutions and retirement services performing well. PEO also showed improvement in Q4, indicating traction from recent changes [53] Question: M&A Strategy - The company remains focused on tuck-in acquisitions that add scale, enhance digital capabilities, and expand product suites. The focus is on finding opportunities that align with strategic objectives and make financial sense [58][59] Question: Margin Guidance - The company has identified opportunities for leverage in the P&L, leading to a higher margin guidance for fiscal year 2024. The planning process is ongoing, with a focus on finding additional opportunities for improvement [62] Question: Revenue Retention vs. Client Retention - Revenue retention is at record levels, driven by a focus on high-value clients. While client retention has returned to pre-pandemic levels, revenue retention has remained higher, reflecting the company's success in retaining valuable clients [73][74] Question: Management Solutions Growth Drivers - The company expects client growth to be in the 1% to 3% range, with pricing in the 2% to 4% range. Additional product penetration and mix will drive the remainder of growth, with some headwinds from ERTC [80] Question: PEO and Insurance Solutions - The company expects growth in PEO and Insurance Solutions to be driven by higher health care attachment rates and client growth. The focus is on improving plan designs and offerings to drive better momentum [140][141] Question: Retirement Solutions - The company is well-positioned to capitalize on the SECURE Act 2.0 and state mandates, with a strong value proposition for small and midsize businesses. The company is actively educating existing customers and leveraging digital marketing programs [162] Question: Sales Organization Performance - The company had a record-setting year in sales execution, with strong momentum in the back half of the fiscal year. The sales team has accepted higher quotas for fiscal year 2024, supported by investments in marketing and sales effectiveness tools [168]

• • Fourth Quarter Business Highlights o Continued demand for HR technology and HR outsourcing solutions o Increased product penetration, particularly in HR outsourcing, time and attendance, and retirement, along with price realization driving higher revenue per client Positioned for growth in fiscal 2024 and beyond o Realizing benefits from continued investments in product development, advisory services, sales, and marketing Innovation to meet our customers' evolving business needs Expanded Advisory Servic ...

WASHINGTON, D.C. 20549 UNITED STATES SECURITIES AND EXCHANGE COMMISSION _________________________________________ 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, 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. (NASDAQ:PAYX) Q3 2023 Results Conference Call March 29, 2023 9:30 AM ET Company Participants John Gibson - President and Chief Executive Officer Efrain Rivera - Senior Vice President, Chief Financial Officer Conference Call Participants Kevin McVeigh - Credit Suisse David Togut - Evercore ISI Ramsey El-Assal - Barclays Daniel Maxwell - William Blair Samad Samana - Jefferies Jared Levine - TD Cowen Jason Kupferberg - Bank of America Kartik Mehta - Northcoast Research Bryan Keane - Deutsche Bank ...

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, 2022 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. (NASDAQ:PAYX) Q2 2023 Earnings Conference Call December 22, 2022 9:30 AM ET Company Participants John Gibson - President and Chief Executive Officer Efrain Rivera - Senior Vice President, Chief Financial Officer Conference Call Participants Ramsey El-Assal - Barclays Bryan Bergin - Cowen and Company Jason Kupferberg - Bank of America Kevin McVeigh - Credit Suisse Samad Samana - Jefferies Kartik Mehta - Northcoast Research Bryan Keane - Deutsche Bank Eugene Simuni - MoffettNathanson LLC Peter ...