2015, PAYCHEX, Inc. All rights reserved. Third Quarter Highlights and Financial Results Fiscal 2016

Transcription

1 Third Quarter Highlights and Financial Results Fiscal 2016

2 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 States Private Securities Litigation Reform Act of Forward-looking statements are neither historical facts nor 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. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks, and changes in circumstances that are difficult to predict and many of which are outside our control. Our actual results and financial conditions may differ materially from those indicated in the forward-looking statements. Therefore, you should not place undue reliance upon any of these forward-looking statements. The information provided in this document is based upon the facts and circumstances known at this time, and any forward-looking statement made in this document speaks only as of the date on which it was made. We undertake no obligation to update these forward-looking statements after the date of issuance of this document to reflect events or circumstances after the date of release of this information, or to reflect the occurrence of unanticipated events.

3 Contents Company Overview Quarterly Highlights Third Quarter Financial Results Fiscal 2016 Outlook 3

4 Company Overview Paychex is a leading provider of integrated human capital management solutions for payroll, HR, retirement, and insurance services for small to medium-sized businesses Market capitalization of approximately $19B Strong financial position with no debt Approximately 590,000 clients as of May 31,

5 Revenue Source Small-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 Payroll 61% HRS 39% As of May 31,

6 Third Quarter 2016 Highlights Results reflected a solid third quarter with positive results across our major human capital management solutions. Continued investment in user experience and flexibility of Paychex Flex. Earlier this year integrated Paychex Flex Time and Paychex Flex Benefits Administration modules. Robust mobility offerings for both administrative users and employee self-service that allow access to our entire HCM suite from a single mobile application. Paychex Employer Shared Responsibility product to manage health care reform requirements continues to grow. Completed the acquisition of Advance Partners, a leading provider of integrated financial, operational, and strategic services to support the temporary staffing industry. 6

7 Third Quarter 2016 Financial Highlights Total service revenue up 7% Operating income, excluding interest on funds held for clients, increased 6%, with operating margin of 36% Combined interest on funds held for clients and investment income increased 11% Cash and total corporate investments of $756 million Net income increased 7% and diluted earnings per share increased 9% 7

8 2016 Third Quarter Financial Results (In millions, except per share amounts) Three Months Ended February 29, 2016 Change % Nine Months Ended February 29, 2016 Change % Payroll Service Revenue $ % $ 1, % Human Resource Services Revenue % % Total Service Revenue % 2, % Interest on Funds Held for Clients % % Total Revenue $ % $ 2, % Net Income (1) $ % $ % Net Tax Benefit for Diluted Shares (1) $ - n/m $.05 n/m Diluted Earnings Per Share, Excluding Net Tax Benefit (1) % % Diluted Earnings Per Share (1) $ % $ % Operating Income, Net of Certain Items (2) $ % $ % (1) A net tax benefit for income derived in prior tax years was recognized as a discrete item in the first quarter. Excluding this net tax benefit, net income and diluted earnings per share would have increased 9% and 10%, respectively, for the nine months ended February 29, (2) Refer to the Management s Discussion and Analysis section of Paychex, Inc. s Form 10-Q for the period ended February 29, 2016, for further discussion of operating income, net of certain items. 8

9 Payroll Service Revenue (In millions) YTD Full Year 1,082 1,439 1,510 1,539 1,141 1,157 1,599 1,205 1,248 1,657 1, % Full Year 2% 5% 2% 4% 4% Increase % of Service 71% 69% 67% 65% 61% Revenue 9

10 Human Resource Services Revenue (In millions) YTD Full Year 1, % Full Year 10% 13% 10% 18% 18% Increase % of Service 29% 31% 33% 35% 39% Revenue Reflects change to classify certain PEO direct costs as operating expenses rather than a reduction in service revenue during fiscal 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. 10

11 Investment Portfolios Results Average Investment Portfolios (in billions): February 29, 2016 Nine Months Ended February 28, 2015 % Change Funds Held for Clients $4.0 $4.0 1% Corporate Investments $0.9 $1.0 (5)% Average Rate of Return Earned: Funds Held for Clients 1.1% 1.0% Corporate Investments 0.8% 0.7% Realized Gains, Net (in millions) 0.1 $0.2 End of Period: Unrealized Gain, Net (in millions) February 29, 2016 $ 61.0 May 31, 2015 $

12 Balance Sheet and Cash Flows February 29, 2016 May 31, 2015 Cash & Investments $756 $936 Debt $0 $0 Return on Equity 39% 36% For the fiscal year-to-date ended: February 29, 2016 February 28, 2015 Operating Cash Flow $791.2 $692.8 Dividends Paid $455.0 $414.4 Dividend Coverage Ratio* 0.9x 1.4x * Ratio is calculated based on free cash flow of $417.8M and $591.5M for the fiscal year-to-date ended February and February , respectively. 12

13 Fiscal Year 2016 Outlook Payroll Service Revenue 4% 5% Human Resource Services Revenue (HRS) 10% 13% Total Service Revenue 7% 8% Net Income (1) 8% 9% Operating Income, Net of Certain Items, as a Percent of Service Revenue Approximately 38% (1) Net income guidance excludes the impact of a net tax benefit on income derived in prior years that was recognized in the first quarter. 13

14 Long-Term Capital Strategy Cash deployment Investment for organic growth Strategic, accretive acquisitions Return cash to shareholders through dividends and stock repurchase Authorization of stock repurchase up to $350 million through May 31, Purchased 2.2 million shares for $108 million during the first nine months of fiscal

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