10-Q

 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

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.

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 February 29, 2024, 359,963,341 shares of the registrant’s common stock, $.01 par value, were outstanding.

Note A: Description of Business, Basis of Presentation, and Significant Accounting Policies

Description of business: Paychex, Inc. and its wholly owned subsidiaries (collectively, the “Company” or “Paychex”) is a leading provider of integrated human capital management (“HCM”) solutions for human resources (“HR”), payroll, benefits, and insurance for small- to medium-sized businesses in the United States (“U.S.”) and parts of Europe. The Company also has operations in India. Paychex, a Delaware corporation formed in 1979, reports as one segment.

Basis of presentation: The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to the Quarterly Report on Form 10-Q ("Form 10-Q") and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statement presentation. The consolidated financial statements include the consolidated accounts of the Company with all intercompany transactions eliminated. Certain disclosures are reported as zero balances due to rounding. In the opinion of management, the information furnished herein reflects all adjustments (consisting of items of a normal recurring nature) necessary for a fair statement of the results for the interim period. These consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements and related Notes to Consolidated Financial Statements presented in the Company’s Annual Report on Form 10-K (“Form 10-K”) for the fiscal year ended May 31, 2023 (“fiscal 2023”). Operating results and cash flows for the nine months ended February 29, 2024 are not necessarily indicative of the results that may be expected for other interim periods or for the fiscal year ending May 31, 2024 (“fiscal 2024”).

Reclassifications: Certain prior year amounts have been reclassified to conform to the current period presentation. These reclassifications had no effect on reported consolidated earnings.

Revision to previously issued financial statements: The consolidated statement of cash flows for the nine months ended February 28, 2023 includes a revision to previously reported amounts related to the presentation of the cash flows associated with short-term receivables purchased from the Company’s clients under non-recourse arrangements. The revision decreased net cash provided by operating activities and increased net cash provided by investing activities by $1.3 million. Management concluded that this revision was not material to the financial statements of any previously filed annual or interim periods. This revision is reflected in this Form 10-Q and will be reflected in future filings.

Restricted cash and restricted cash equivalents: Restricted cash and restricted cash equivalents are recorded at fair value, and consist of cash and cash equivalents, primarily money market securities, included in funds held for clients and cash that is restricted in use to secure commitments for certain workers’ compensation insurance policies.

Accounts receivable, net of allowance for credit losses: Accounts receivable balances are shown on the Consolidated Balance Sheets net of the allowance for credit losses of $22.5 million and $20.5 million as of February 29, 2024 and May 31, 2023, respectively. These balances include trade receivables for services provided to clients and receivables purchased from the Company's clients under non-recourse arrangements. Trade receivables were $215.4 million and $287.0 million as of February 29, 2024 and May 31, 2023, respectively. Purchased receivables, at gross, were $895.7 million and $606.8 million as of February 29, 2024 and May 31, 2023, respectively.

The Company is exposed to credit losses through the sale of services, payment of client obligations, and collection of purchased receivables. To mitigate this credit risk, the Company has multiple programs in place to assess and continuously monitor each client’s ability to pay for these solutions and support. Credit monitoring programs include, but are not limited to, new client credit reviews, establishing appropriate credit limits, monitoring of credit distressed clients, and early electronic wire and collection procedures. The Company also considers contract terms and conditions, client business type or strategy and may require collateralized asset support or prepayment to mitigate credit risk.

Accounts receivable are written off and charged against the allowance for credit losses when the Company has exhausted all collection efforts without success. The Company estimates its credit losses based on historical loss activity adjusted for current economic conditions and reasonable and supportable forecast factors, when applicable. The provision for the allowance for credit losses and accounts written off were



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)


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


Large accelerated filer		Accelerated filer	
Non-accelerated filer		Smaller reporting company	
		Emerging growth company	


		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	5
	Notes to Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	29
Item 4.	Controls and Procedures	29
PART II. OTHER INFORMATION		30
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	30
Item 5.	Other Information	30
Item 6.	Exhibits	30
Signatures		31


	For the three months ended					For the nine months ended
	February 29,		February 28,			February 29,		February 28,
	2024		2023			2024		2023
Revenue:
Management Solutions	$	1,049.9	$	1,024.5		$	2,936.1	$	2,825.3
PEO and Insurance Solutions		345.5		321.2			939.0		877.3
Total service revenue		1,395.4		1,345.7			3,875.1		3,702.6
Interest on funds held for clients		43.9		35.3			108.1		74.9
Total revenue		1,439.3		1,381.0			3,983.2		3,777.5
Expenses:
Cost of service revenue		379.8		372.9			1,104.1		1,083.2
Selling, general and administrative expenses		409.7		396.2			1,186.8		1,114.5
Total expenses		789.5		769.1			2,290.9		2,197.7
Operating income		649.8		611.9			1,692.3		1,579.8
Other income, net		9.4		5.5			33.9		4.8
Income before income taxes		659.2		617.4			1,726.2		1,584.6
Income taxes		160.6		150.0			415.7		377.7
Net income	$	498.6	$	467.4		$	1,310.5	$	1,206.9

Other comprehensive income/(loss), net of tax		22.0		(5.9	)		14.7		(70.3	)
Comprehensive income	$	520.6	$	461.5		$	1,325.2	$	1,136.6

Basic earnings per share	$	1.39	$	1.30		$	3.64	$	3.35
Diluted earnings per share	$	1.38	$	1.29		$	3.62	$	3.33
Weighted-average common shares outstanding		359.9		360.5			360.4		360.3
Weighted-average common shares outstanding, assuming dilution		361.7		362.3			362.2		362.3


	February 29,			May 31,
	2024			2023
Assets
Cash and cash equivalents	$	1,693.6		$	1,222.0
Restricted cash		41.0			49.8
Corporate investments		36.6			373.4
Interest receivable		22.8			24.4
Accounts receivable, net of allowance for credit losses		1,088.6			873.3
PEO unbilled receivables, net of advance collections		590.7			528.5
Prepaid income taxes		21.0			48.1
Prepaid expenses and other current assets		312.6			289.8
Current assets before funds held for clients		3,806.9			3,409.3
Funds held for clients		6,079.5			4,118.8
Total current assets		9,886.4			7,528.1
Long-term corporate investments		1.6			3.8
Property and equipment, net of accumulated depreciation		419.1			396.3
Operating lease right-of-use assets, net of accumulated amortization		58.9			61.5
Intangible assets, net of accumulated amortization		204.9			187.4
Goodwill		1,882.3			1,834.0
Long-term deferred costs		476.1			470.1
Other long-term assets		94.6			65.2
Total assets	$	13,023.9		$	10,546.4
Liabilities
Accounts payable	$	94.0		$	84.7
Accrued corporate compensation and related items		173.1			209.9
Accrued worksite employee compensation and related items		903.8			763.9
Short-term borrowings		18.8			10.2
Deferred revenue		51.7			47.3
Other current liabilities		518.0			395.4
Current liabilities before client fund obligations		1,759.4			1,511.4
Client fund obligations		6,241.4			4,294.0
Total current liabilities		8,000.8			5,805.4
Accrued income taxes		99.3			83.0
Deferred income taxes		94.8			112.1
Long-term borrowings, net of debt issuance costs		798.5			798.2
Operating lease liabilities		51.5			57.3
Other long-term liabilities		231.9			197.2
Total liabilities		9,276.8			7,053.2
Commitments and contingencies — Note I
Stockholders’ equity
Common stock, $0.01 par value; Authorized: 600.0 shares; Issued and outstanding: 360.0 shares as of February 29, 2024 and 360.5 shares as of May 31, 2023		3.6			3.6
Additional paid-in capital		1,702.5			1,626.4
Retained earnings		2,186.2			2,023.1
Accumulated other comprehensive loss		(145.2	)		(159.9	)
Total stockholders’ equity		3,747.1			3,493.2
Total liabilities and stockholders’ equity	$	13,023.9		$	10,546.4


	For the nine months ended February 29, 2024
													Accumulated
							Additional						other
	Common stock						paid-in			Retained			comprehensive
	Shares			Amount			capital			earnings			loss			Total
Balance as of May 31, 2023		360.5		$	3.6		$	1,626.4		$	2,023.1		$	(159.9	)	$	3,493.2
Net income		—			—			—			1,310.5			—			1,310.5
Unrealized gains on securities, net of $3.5 million in tax expense		—			—			—			—			9.9			9.9
Reclassification adjustment for realized losses on securities, net of $0.0 million in tax benefit (1)		—			—			—			—			0.0			0.0
Cash dividends declared ($2.67 per share)		—			—			—			(962.3	)		—			(962.3	)
Repurchases of common shares (2)		(1.5	)		(0.0	)		(6.2	)		(163.0	)		—			(169.2	)
Stock-based compensation costs		—			—			45.1			—			—			45.1
Foreign currency translation adjustment		—			—			—			—			4.8			4.8
Activity related to equity-based plans		1.0			0.0			37.2			(22.1	)		—			15.1
Balance as of February 29, 2024		360.0		$	3.6		$	1,702.5		$	2,186.2		$	(145.2	)	$	3,747.1


	For the three months ended February 29, 2024
										Accumulated
					Additional					other
	Common stock				paid-in		Retained			comprehensive
	Shares		Amount		capital		earnings			loss			Total
Balance as of November 30, 2023		359.8	$	3.6	$	1,678.6	$	2,009.4		$	(167.2	)	$	3,524.4
Net income		—		—		—		498.6			—			498.6
Unrealized gains on securities, net of $6.3 million in tax expense		—		—		—		—			19.0			19.0
Reclassification adjustment for realized gains on securities, net of $0.0 million in tax expense (1)		—		—		—		—			(0.0	)		(0.0	)
Cash dividends declared ($0.89 per share)		—		—		—		(320.4	)		—			(320.4	)
Repurchases of common shares (2)		—		—		—		—			—			—
Stock-based compensation costs		—		—		14.4		—			—			14.4
Foreign currency translation adjustment		—		—		—		—			3.0			3.0
Activity related to equity-based plans		0.2		0.0		9.5		(1.4	)		—			8.1
Balance as of February 29, 2024		360.0	$	3.6	$	1,702.5	$	2,186.2		$	(145.2	)	$	3,747.1


	For the nine months ended February 28, 2023
										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		—		—		—		1,206.9			—			1,206.9
Unrealized losses on securities, net of $23.3 million in tax benefit		—		—		—		—			(70.7	)		(70.7	)
Reclassification adjustment for realized gains on securities, net of $0.0 million in tax expense (1)		—		—		—		—			(0.1	)		(0.1	)
Cash dividends declared ($2.37 per share)		—		—		—		(854.5	)		—			(854.5	)
Repurchases of common shares (2)		—		—		—		—			—			—
Stock-based compensation costs		—		—		46.0		—			—			46.0
Foreign currency translation adjustment		—		—		—		—			0.5			0.5
Activity related to equity-based plans		0.6		0.0		16.1		(28.3	)		—			(12.2	)
Balance as of February 28, 2023		360.5	$	3.6	$	1,608.0	$	1,993.7		$	(204.2	)	$	3,401.1


	For the three months ended February 28, 2023
										Accumulated
					Additional					other
	Common stock				paid-in		Retained			comprehensive
	Shares		Amount		capital		earnings			loss			Total
Balance as of November 30, 2022		360.5	$	3.6	$	1,588.6	$	1,811.4		$	(198.3	)	$	3,205.3
Net income		—		—		—		467.4			—			467.4
Unrealized losses on securities, net of $3.3 million in tax benefit		—		—		—		—			(9.4	)		(9.4	)
Reclassification adjustment for realized gains on securities, net of $0.0 million in tax expense (1)		—		—		—		—			0.0			0.0
Cash dividends declared ($0.79 per share)		—		—		—		(284.9	)		—			(284.9	)
Repurchases of common shares (2)		—		—		—		—			—			—
Stock-based compensation costs		—		—		16.3		—			—			16.3
Foreign currency translation adjustment		—		—		—		—			3.5			3.5
Activity related to equity-based plans		0.0		0.0		3.1		(0.2	)		—			2.9
Balance as of February 28, 2023		360.5	$	3.6	$	1,608.0	$	1,993.7		$	(204.2	)	$	3,401.1