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 August 31, 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.

(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 August 31, 2022, 360,400,603 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	4
	Notes to Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
Item 3.	Quantitative and Qualitative Disclosures of Market Risk	26
Item 4.	Controls and Procedures	27
PART II. OTHER INFORMATION		28
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	28
Item 6.	Exhibits	28
Signatures		29

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
	August 31,
	2022			2021
Revenue:
Management Solutions	$	905.5		$	805.5
PEO and Insurance Solutions		282.8			262.9
Total service revenue		1,188.3			1,068.4
Interest on funds held for clients		17.9			14.5
Total revenue		1,206.2			1,082.9
Expenses:
Cost of service revenue		351.0			312.5
Selling, general and administrative expenses		359.6			327.5
Total expenses		710.6			640.0
Operating income		495.6			442.9
Other (expense)/income, net		(3.6	)		1.0
Income before income taxes		492.0			443.9
Income taxes		112.8			110.3
Net income	$	379.2		$	333.6
Other comprehensive loss, net of tax		(37.5	)		(6.7	)
Comprehensive income	$	341.7		$	326.9
Basic earnings per share	$	1.05		$	0.93
Diluted earnings per share	$	1.05		$	0.92
Weighted-average common shares outstanding		360.1			360.1
Weighted-average common shares outstanding, assuming dilution		362.4			362.8

See Notes to Consolidated Financial Statements.

1

PAYCHEX, INC.

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

In millions, except per share amounts

	August 31,			May 31,
	2022			2022
Assets
Cash and cash equivalents	$	1,184.2		$	370.0
Restricted cash		60.1			50.3
Corporate investments		45.8			853.9
Interest receivable		20.6			22.3
Accounts receivable, net of allowance for credit losses		876.4			723.8
PEO unbilled receivables, net of advance collections		476.3			572.1
Prepaid income taxes		—			34.0
Prepaid expenses and other current assets		286.2			272.3
Current assets before funds held for clients		2,949.6			2,898.7
Funds held for clients		3,135.8			3,682.9
Total current assets		6,085.4			6,581.6
Long-term restricted cash		32.6			25.5
Long-term corporate investments		3.9			5.0
Property and equipment, net of accumulated depreciation		398.1			401.3
Operating lease right-of-use assets, net of accumulated amortization		74.7			78.7
Intangible assets, net of accumulated amortization		212.5			224.6
Goodwill		1,825.3			1,831.5
Long-term deferred costs		441.1			433.3
Other long-term assets		52.3			53.7
Total assets	$	9,125.9		$	9,635.2
Liabilities
Accounts payable	$	84.7		$	105.7
Accrued corporate compensation and related items		138.7			225.4
Accrued worksite employee compensation and related items		715.0			683.4
Short-term borrowings		10.3			8.7
Accrued income taxes		40.0			—
Deferred revenue		40.8			38.4
Other current liabilities		361.4			388.4
Current liabilities before client fund obligations		1,390.9			1,450.0
Client fund obligations		3,311.3			3,819.2
Total current liabilities		4,702.2			5,269.2
Accrued income taxes		61.7			58.1
Deferred income taxes		157.1			165.5
Long-term borrowings, net of debt issuance costs		797.8			797.7
Operating lease liabilities		71.0			74.8
Other long-term liabilities		198.7			184.7
Total liabilities		5,988.5			6,550.0
Commitments and contingencies — Note H
Stockholders’ equity
Common stock, $0.01 par value; Authorized: 600.0 shares; Issued and outstanding: 360.4 shares as of August 31, 2022 and 359.9 shares as of May 31, 2022		3.6			3.6
Additional paid-in capital		1,568.9			1,545.9
Retained earnings		1,736.3			1,669.6
Accumulated other comprehensive loss		(171.4	)		(133.9	)
Total stockholders’ equity		3,137.4			3,085.2
Total liabilities and stockholders’ equity	$	9,125.9		$	9,635.2

See Notes to Consolidated Financial Statements.

2

PAYCHEX, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)

In millions, except per share amounts

	For the three months ended August 31, 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		—		—		—		379.2			—			379.2
Unrealized losses on securities, net of $9.7 million in tax benefit		—		—		—		—			(29.5	)		(29.5	)
Reclassification adjustment for realized gains on securities, net of $ - million in tax expense (1)		—		—		—		—			(0.1	)		(0.1	)
Cash dividends declared ($0.79 per share)		—		—		—		(284.7	)		—			(284.7	)
Stock-based compensation costs		—		—		14.4		—			—			14.4
Foreign currency translation adjustment		—		—		—		—			(7.9	)		(7.9	)
Activity related to equity-based plans		0.5		0.0		8.6		(27.8	)		—			(19.2	)
Balance as of August 31, 2022		360.4	$	3.6	$	1,568.9	$	1,736.3		$	(171.4	)	$	3,137.4

	For the three months ended August 31, 2021
										Accumulated
					Additional					other
	Common stock				paid-in		Retained			comprehensive
	Shares		Amount		capital		earnings			income			Total
Balance as of May 31, 2021		359.8	$	3.6	$	1,446.7	$	1,445.9		$	51.8		$	2,948.0
Net income		—		—		—		333.6			—			333.6
Unrealized losses on securities, net of $0.1 million in tax benefit		—		—		—		—			(0.5	)		(0.5	)
Reclassification adjustment for realized gains on securities, net of $ - million in tax expense (1)		—		—		—		—			(0.1	)		(0.1	)
Cash dividends declared ($0.66 per share)		—		—		—		(238.1	)		—			(238.1	)
Stock-based compensation costs		—		—		12.4		—			—			12.4
Foreign currency translation adjustment		—		—		—		—			(6.1	)		(6.1	)
Activity related to equity-based plans		0.8		0.0		22.4		(28.1	)		—			(5.7	)
Balance as of August 31, 2021		360.6	$	3.6	$	1,481.5	$	1,513.3		$	45.1		$	3,043.5

(1)Reclassification adjustments out of accumulated other comprehensive (loss)/income for realized gains, 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.

See Notes to Consolidated Financial Statements.

3

PAYCHEX, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

In millions

	For the three months ended
	August 31,
	2022			2021
Operating activities
Net income	$	379.2		$	333.6
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		44.0			45.7
Amortization of premiums and discounts on AFS securities, net		6.0			7.9
Amortization of deferred contract costs		53.0			49.1
Stock-based compensation costs		14.4			12.4
Provision for deferred income taxes		2.5			11.5
Provision for credit losses		4.5			(3.6	)
Net realized gains on sales of AFS securities		(0.1	)		(0.1	)
Changes in operating assets and liabilities:
Interest receivable		1.7			3.1
Accounts receivable and PEO unbilled receivables, net		(61.2	)		(30.4	)
Prepaid expenses and other current assets		23.7			23.2
Accounts payable and other current liabilities		(61.1	)		(29.1	)
Deferred costs		(64.5	)		(53.7	)
Net change in other long-term assets and liabilities		23.7			17.6
Net change in operating lease right-of-use assets and liabilities		(1.5	)		(1.6	)
Net cash provided by operating activities		364.3			385.6
Investing activities
Purchases of AFS securities		(3,807.6	)		(247.5	)
Proceeds from sales and maturities of AFS securities		5,066.9			256.9
Purchases of property and equipment		(30.6	)		(30.4	)
Purchases of other assets, net		(5.6	)		(1.3	)
Net cash provided by/(used in) investing activities		1,223.1			(22.3	)
Financing activities
Net change in client fund obligations		(507.9	)		32.4
Net change in short-term borrowings		2.0			(0.3	)
Dividends paid		(284.6	)		(238.1	)
Activity related to equity-based plans		(19.2	)		(5.7	)
Net cash used in financing activities		(809.7	)		(