Paychex announced the following results for the fiscal quarter ended November 30, 2023 (the “second quarter”), as compared to the corresponding prior-year period:
President and Chief Executive Officer, John Gibson commented, “We are pleased with our results for the second quarter and the first half of fiscal 2024, with total revenue growth of 6% and diluted earnings per share and adjusted diluted earnings per share growth through the first half of the fiscal year of 10%. The macro-economic environment remains stable for small and mid-sized businesses, who continue to face challenges in both the cost of and access to growth capital; and finding quality talent in the current labor market. Our Small Business Employment Watch continues to show moderation in both job growth and wage inflation.”
Mr. Gibson also noted, “We continue to see demand for our HCM technology, HR and insurance solutions, as businesses struggle to comply with increasing regulations and a challenging HR landscape and labor market.”
Second Quarter Business Highlights
Service revenue increased to $1.2 billion for the second quarter, growth of 5% over the prior year period. Highlights as compared to the corresponding prior year period are as follows:
Management Solutions revenue increased 4% to $930.7 million for the second quarter primarily due to the following factors:
- Growth in the number of clients served across our suite of human capital management (“HCM”) solutions;
- Higher revenue per client from price realization and product penetration, including HR Solutions and retirement; and
- Growth in ancillary services.
Professional Employer Organization (“PEO”) and Insurance Solutions revenue increased 8% to $295.7 million for the second quarter primarily due to the following:
- Growth in the number of average PEO worksite employees;
- Increase in PEO insurance revenues; and
- Higher revenue from ancillary services.
Interest on funds held for clients increased 44% to $31.5 million for the second quarter primarily due to higher average interest rates.
Total expenses increased 5% to $751.7 million for the second quarter primarily due to the following:
- Higher compensation costs driven by increases in average wage rates;
- Increase in PEO direct insurance costs related to growth in average worksite employees and PEO insurance revenues; and
- Continued investment in technology, sales and marketing.
Operating income grew 7% to $506.2 million for the second quarter. Operating margin (operating income as a percentage of total revenue) increased to 40.2% for the second quarter compared to 39.7% for the prior year period.
Other income/(expense) was $11.7 million for the second quarter compared to $2.9 million in the prior year period primarily as a result of higher average interest rates earned on our corporate investments as well as higher average investment balances.
Our effective income tax rate was 24.2% for the second quarter and 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 9% to $1.08 per share for the second quarter and adjusted diluted earnings per share(1) increased 9% to $1.08 per share for the same period.
| (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. |
Fiscal Year-To-Date Business Highlights
Highlights for the six months ended November 30, 2023 (the “six months”) as compared to the corresponding prior year period are as follows:
- Total revenue increased 6% to $2.5 billion.
- Operating income increased 8% to $1.0 billion.
- Diluted earnings per share increased 10% to $2.24 per share. Adjusted diluted earnings per share(1) increased 10% to $2.23 per share.
| (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 half of the fiscal year. As of November 30, 2023, we had:
- Cash, restricted cash, and total corporate investments of $1.4 billion.
- Short-term and long-term borrowings, net of debt issuance costs, of $812.0 million.
- Cash flow from operations was $1.0 billion for the six months.
Return to Stockholders During the Six Months
- Paid cumulative dividends of $1.78 per share totaling $642.1 million.
- Repurchased 1.5 million shares of our common stock for $169.2 million.
Business Outlook
Our business outlook for the fiscal year ending May 31, 2024 (“fiscal 2024”) 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:
- PEO and Insurance Solutions revenue is now anticipated to grow in the range of 7% to 9%.
- Other income, net is now expected to be in the range of $35 million to $40 million.
- Adjusted diluted earnings per share(1) is now anticipated to grow in the range of 10% to 11%.
- Other aspects of our guidance for fiscal 2024 remain unchanged from what we provided previously.
| (1) | Adjusted diluted earnings per share is not a U.S. GAAP measure. Please refer to the “Non-GAAP Financial M |
