first quarter highlights and financial results fiscal … quarter highlights and financial results...

© 2017, PAYCHEX, Inc. All rights reserved.

First Quarter Highlights and Financial Results Fiscal 2018

Forward Looking Statements

You should be aware that certain written and oral statements made by management may constitute“forward-looking statements” within the meaning of the safe-harbor provisions of the United StatesPrivate Securities Litigation Reform Act of 1995. Forward-looking statements are neither historical factsnor assurances of future performance. Instead, they are based only on our current beliefs,expectations, and assumptions regarding the future of our business, future plans and strategies,projections, anticipated events and trends, the economy, and other future conditions. Becauseforward-looking statements relate to the future, they are subject to inherent uncertainties, risks, andchanges in circumstances that are difficult to predict, many of which are outside our control. Our actualresults and financial conditions may differ materially from those indicated in the forward-lookingstatements. Therefore, you should not place undue reliance upon any of these forward-lookingstatements. The information provided in this document is based upon the facts and circumstancesknown at this time, and any forward-looking statement made in this document speaks only as of thedate on which it was made. We undertake no obligation to update these forward-looking statementsafter the date of issuance of this document to reflect events or circumstances after the date of releaseof this information, or to reflect the occurrence of unanticipated events.


Company Overview

Quarterly Highlights

First Quarter Financial Results

Fiscal 2018 Outlook

Contents

3


Paychex is a leading provider of integrated humancapital management solutions (“HCM”) for payroll,human resources (“HR”), retirement, and insuranceservices for small- to mid-sized businesses.

Market capitalization of over $20B

Strong financial position

Approximately 605,000 payroll clients as of May 31, 2017

Paychex Overview

4


Revenue SourceSmall Business Payroll Small business targets businesses with 1-50

employees

Mid-Market Payroll Mid-market targets businesses with 50-1,000

employees

Growing portfolio of standalone services – expense management; applicant tracking; time and labor

Human Resource Services Market leader in complimentary services sold to

payroll clients – retirement, insurance, and HR services

5

As of May 31, 2017

Payroll57%

HRS43%


Results reflect continued growth across our major HCM product lines, in particular comprehensive

HR outsourcing solutions and time and attendance products.

Growth rates for the first quarter were tempered by challenging comparisons to the respective prior

year quarter, which benefited from tailwinds related to the Affordable Care Act.

The combined interest on funds held for clients and corporate investment portfolios benefited from

higher interest rates. The Federal Funds rate was again increased 25 basis points in June 2017 to

a range of 1.00% to 1.25%.

Completed the acquisition HR Outsourcing, Inc. (“HROI”), a national professional employer

organization (“PEO”) servicing small- to mid-sized clients across 35 states. This acquisition

expands our presence in the PEO industry.

Announced plans for a new multi-building Paychex campus based in Rochester, NY. This involves

the purchase of five buildings, the renovation of over 300,000 square feet of existing space in

Rochester, and will allow consolidation of currently leased space.

First Quarter 2018 Highlights

6


Total service revenue up 4%

Operating income increased 7%, with operating margin of 42.2%

Combined interest on funds held for clients and investment income

increased 17%

Cash and total investments of $851 million as of August 31, 2017

Net income and diluted earnings per share each increased 5%.

Adjusted net income (1) increased 9% and adjusted diluted earnings per

share(1) increased 11%.

First Quarter 2018 Financial Highlights

7

(1) Adjusted net income and adjusted diluted earnings per share are non-GAAP measures, which exclude the additional tax benefit or shortfall related to employee stock-based compensation payments recognized in income taxes. Refer to a reconciliation of non-GAAP measures on slide 9 along with further discussion in the Management’s Discussion and Analysis section of our Quarterly Report on Form 10-Q.


2018 First Quarter Financial Results(In Millions, Except Per Share Amounts)

(1) Adjusted net income and adjusted diluted earnings per share are non-GAAP measures, which exclude the additional tax benefit or shortfall related to employee stock-based compensation payments recognized in income taxes. Refer to a reconciliation of non-GAAP measures on slide 9 along with further discussion in the Management’s Discussion and Analysis section of our Quarterly Report on Form 10-Q.

Three MonthsEnded

August 31, 2017

%Change

Payroll Service Revenue $ 457.8 2%

Human Resource Services Revenue 345.3 7%

Total Service Revenue 803.1 4%

Interest on Funds Held for Clients 13.7 14%

Total Revenue $ 816.8 4%

Operating Income $ 345.0 7%

Net Income $ 227.8 5%

Adjusted Net Income(1) $ 222.8 9%

Diluted Earnings Per Share $ 0.63 5%

Adjusted Diluted Earnings per Share(1) $ 0.62 11%

8


Non-GAAP Financial Measures(In Millions, Except Per Share Amounts)

(1) Adjusted net income and adjusted diluted earnings per share are non-GAAP measures. Refer to the Management’s Discussion and Analysis section of our Quarterly Report on Form 10-Q.

Three Months Ended August 31,

2017 2016%

Change

Net Income $ 227.8 $ 217.4 5%

Non-GAAP Adjustments:

Excess Tax Benefit Related to Employee Stock-based Compensation Payments (5.0) (13.2)

Adjusted Net Income(1)$ 222.8 $ 204.2 9%

Diluted Earnings per Share $ 0.63 $ 0.60 5%

Non-GAAP Adjustments:

Excess Tax Benefit Related to Employee Stock-based Compensation Payments (0.01) (0.04)

Adjusted Diluted Earnings per Share(1)$ 0.62 $ 0.56 11%

9


Strong Earnings History

$400

$450

$500

$550

$600

$650

$700

$750

$800

$850

FY13 FY14 FY15 FY16 FY17

$569

$627

$675

$757

$817

Net Income (in millions)

$1.00

$1.25

$1.50

$1.75

$2.00

$2.25


$1.56

$1.71

$1.85

$2.09

$2.25

Diluted EPS

(1) Net income and diluted earnings per share were both impacted by certain net tax benefits recognized during the respective periods. Refer to further discussion in the Management’s Discussion and Analysis section of our Annual Report on Form 10-K.

(1)(1) (1) (1)

* 5-Year CAGR

10


Sustained Performance(in millions)

$800

$900

$1,000

$1,100

$1,200

$1,300


$905

$983

$1,054

$1,147

$1,240

Operating Income

$2,000

$2,200

$2,400

$2,600

$2,800

$3,000

$3,200


$2,285

$2,478

$2,698

$2,906

$3,101

Service Revenue (1)

(1) Reflects change to classify certain PEO direct costs as operating expenses rather than a reduction in service revenue starting in FY14.

* 5-Year CAGR

11


2014(1) 2015 2016 2017 2018

$395 $413 $432 $451 $458

$208 $244

$280 $323 $345

Payroll revenue HRS revenue

$603

$712$774

$803

% Y/O/Y Increase 6% 9% 8% 9% 4%

12

Total Service Revenue Year to Date(In millions)

(1) Reflects change to classify certain PEO direct costs as operating expenses rather than a reduction in service revenue during fiscal 2014. Refer to the “Management’s Discussion and Analysis” section of Paychex, Inc.’s Form 10-K for the period ended May 31, 2014 for further discussion.

$657

Three months ended August 31


Three Months Ended August 31,

2017 2016 % Change

Average Investment Portfolios (in billions):

Funds Held for Clients $3.8 $3.8 – %

Corporate Investments $0.9 $1.0 (4)%

Average Rate of Return Earned:

Funds Held for Clients 1.4% 1.3%

Corporate Investments 1.2% 1.0%

Realized Gains, Net (in millions) – $0.1

End of Period:

Unrealized Gain, Net (in millions)

August 31, 2017

$38.6

May 31, 2017

$ 32.0

Investment Portfolios Results

13


Balance Sheet and Cash Flows($ in Millions)

August 31, 2017 May 31, 2017

Cash & Investments $851 $777

Short-term Borrowings $57.2 $0

Return on Equity 42% 42%

For the fiscal year-to-date ended: August 31, 2017 August 31, 2016

Operating Cash Flow $343.6 $294.7

Dividends Paid $179.1 $166.3

Dividend Coverage Ratio* 1.8x 1.7x

14

* Ratio is calculated based on free cash flow of $317.0M and $274.4M for the fiscal year-to-date ended August 31, 2017 and 2016, respectively.


Fiscal Year 2018 OutlookYear-over-Year Growth

Payroll Service Revenue 1% – 2%

HRS Revenue(1) 12% – 14%

Interest on funds held for clients Mid- to Upper-teens

Total Revenue(1) Approximately 6%

Net Income Approximately 5%

Adjusted Net Income(2) Approximately 7%

Diluted Earnings per Share 5% - 6%

Adjusted Diluted Earnings per Share(2) 7% - 8%

15

(1) Guidance revised to incorporate anticipated results from the acquisition of HROI as well as the discrete tax benefit recognized in the three months ended August 31, 2017. All other guidance remains unchanged from that provided in June 2017.

(2) Adjusted net income and adjusted diluted earnings per share are non-GAAP measures, which exclude the impact of certain discrete tax items. Fiscal 2018 growth rates for these non-GAAP measures are based on fiscal 2017 adjusted net income of $799.0 million and adjusted diluted earnings per share of $2.20. No assumptions were made in regards to discrete tax items in future periods for employee stock-based compensation payments in our fiscal 2018 guidance. Refer to the reconciliation for fiscal 2017 results on the Non-GAAP Financial Measures slide earlier in this presentation as well as further discussion in the Management’s Discussion and Analysis section of our Annual Report on Form 10-K.

Anticipated Result

Operating Income, as a Percent of Total Revenue(1) 39% - 40%

Investment Income, Net $9.0M - $11.0M

Effective Income Tax Rate(1) 35.0% - 35.5%


Cash deployment

Investment for organic growth

Strategic acquisitions

Return cash to shareholders through dividends and stock repurchase

In July 2016, the Board of Directors authorized a new stock repurchase plan topurchase up to $350 million of Paychex common stock, with authorization forthis program expiring in May 2019. 1.6 million shares were repurchased for atotal of $94.1 million during the first quarter fiscal 2018. No shares wererepurchased during the respective quarter of fiscal 2017.

Long-Term Capital Strategy

16

first quarter highlights and financial results fiscal … quarter highlights and financial results...

Documents