Paychex(PAYX) - 2025 Q1 - Quarterly Results

Financial & Business Highlights Paychex reported a solid start to fiscal 2025 with 3% total revenue growth to $1.32 billion and 2% diluted EPS increase, alongside strategic investments in AI and substantial shareholder returns | Indicator | Q1 FY2025 (ended Aug 31, 2024) | Q1 FY2024 (ended Aug 31, 2023) | Change (%) | | :--- | :--- | :--- | :--- | | Total Revenue | $1,318.5 million | $1,286.0 million | 3% | | Operating Income | $546.7 million | $536.3 million | 2% | | Diluted EPS | $1.18 | $1.16 | 2% | | Adjusted Diluted EPS | $1.16 | $1.14 | 2% | - CEO John Gibson highlighted a solid start to fiscal 2025, noting that adjusted revenue growth was 7% after excluding the impacts of the ERTC program expiration and one less payroll processing day[2] - The company launched new digital and AI-driven solutions to help clients with workforce management, including Paychex Flex® Engage, Paychex Flex Perks, and Paychex Recruiting Copilot[2] First Quarter Performance Analysis First quarter performance was driven by strong growth in PEO and Insurance Solutions and interest income, partially offset by modest Management Solutions growth and increased expenses, resulting in a 2% rise in operating income Revenue Analysis Total revenue grew 3% to $1.3 billion, primarily driven by a 7% increase in PEO and Insurance Solutions revenue and a 15% rise in interest on funds held for clients, despite tempered growth in Management Solutions | Revenue Segment | Q1 FY2025 (in millions) | Q1 FY2024 (in millions) | Change (%) | | :--- | :--- | :--- | :--- | | Management Solutions | $961.7 | $955.5 | 1% | | PEO and Insurance Solutions | $319.3 | $297.8 | 7% | | Interest on funds held for clients | $37.5 | $32.7 | 15% | | Total Revenue | $1,318.5 | $1,286.0 | 3% | - Management Solutions revenue growth was driven by an increase in the number of clients and higher product penetration, but was negatively impacted by lower revenue from the expired ERTC Service[3] - PEO and Insurance Solutions revenue increased due to growth in the number of average PEO worksite employees and an increase in PEO insurance revenues[4] Expense and Profitability Analysis Total expenses increased 3% to $771.8 million due to higher PEO direct insurance costs and investments, leading to a 2% rise in operating income to $546.7 million despite a slight operating margin contraction - Total expenses increased primarily due to higher PEO direct insurance costs and continued investment in technology, sales, and marketing[4] | Profitability Metric | Q1 FY2025 (in millions) | Q1 FY2024 (in millions) | Change | | :--- | :--- | :--- | :--- | | Operating Income | $546.7 | $536.3 | 2% | | Operating Margin | 41.5% | 41.7% | (0.2 percentage points) | | Net Income | $427.4 | $419.2 | 2% | | Diluted EPS | $1.18 | $1.16 | 2% | - Operating income was negatively impacted by the expiration of the ERTC program and one less payroll processing day compared to the prior year quarter[5] Financial Position and Shareholder Returns Paychex maintained a strong financial position with $1.6 billion in cash and investments, generating $546.1 million in operating cash flow and returning $457.4 million to stockholders through dividends and share repurchases | Financial Position (as of Aug 31, 2024) | Amount | | :--- | :--- | | Cash, restricted cash, and total corporate investments | $1.6 billion | | Short-term and long-term borrowings, net | $817.6 million | | Cash flow from operations (Q1 FY2025) | $546.1 million | | Shareholder Returns (Q1 FY2025) | Amount | | :--- | :--- | | Dividends Paid | $353.4 million | | Share Repurchases | $104.0 million | | Total Returned to Stockholders | $457.4 million | Non-GAAP Financial Measures Paychex presents non-GAAP measures like adjusted net income and diluted EPS to provide a clearer view of core business performance by excluding volatile items such as excess tax benefits from stock-based compensation - Paychex presents non-GAAP measures like adjusted net income and EBITDA, believing they are better indicators of core business performance by excluding volatile items such as excess tax benefits from stock-based compensation[8] | Non-GAAP Reconciliation (Q1 FY2025) | Amount (in millions) | | :--- | :--- | | Net Income (GAAP) | $427.4 | | Less: Excess tax benefits | ($6.2) | | Adjusted Net Income (Non-GAAP) | $421.2 | | Diluted EPS (GAAP) | $1.18 | | Less: Impact of excess tax benefits | ($0.02) | | Adjusted Diluted EPS (Non-GAAP) | $1.16 | Business Outlook Paychex updated its fiscal 2025 guidance, raising the outlook for interest on funds held for clients to $145-$155 million and other income, net, to $30-$35 million, with all other guidance remaining unchanged - The company updated its fiscal 2025 outlook for the following items[10] - Interest on funds held for clients: Now anticipated to be in the range of $145 million to $155 million[10] - Other income, net: Now anticipated to be in the range of $30 million to $35 million[10] Appendix This section provides important legal disclosures, including forward-looking statement risks, and the complete unaudited consolidated financial statements for the first quarter ended August 31, 2024 Forward-Looking Statements The company outlines various risks and uncertainties that could cause actual results to differ from forward-looking statements, including technology, cybersecurity, economic volatility, regulatory changes, and personnel retention - The company identifies several significant risk factors that could impact future performance, including cybersecurity vulnerabilities, macroeconomic pressures on small and medium-sized business clients, inflation, interest rate changes, and changes in governmental regulations[15] Consolidated Financial Statements This section presents the unaudited Consolidated Statements of Income, Balance Sheets, and Cash Flows for the three months ended August 31, 2024, with comparative prior year data - The release includes the unaudited Consolidated Statement of Income for the three months ended August 31, 2024[19] - The release includes the unaudited Consolidated Balance Sheet as of August 31, 2024[20] - The release includes the unaudited Consolidated Statement of Cash Flows for the three months ended August 31, 2024[21]