Earnings Results: • Total revenue increased 7% to $1.2 billion in Q3 • Management Solutions revenue increased 8% to $1.0 billion • PEO and Insurance Solutions revenue increased 6% to $300 million • Operating income increased 8% to $600 million; operating margins expanded to 51.6% • Diluted EPS increased 8% to $1.22; adjusted diluted EPS increased 8% to $1.22 • YTD revenue grew 8% to $3.3 billion; operating margins at 41.4%, a 170 bps expansion
Future Guidance: • Q4 total revenue growth expected to be approximately 8% • Q4 operating margins expected to be between 41-42% • FY24 preliminary revenue growth outlook in range of 8-9%, despite ERTC headwind of 2% • FY24 margins expected to expand despite ERTC headwind • FY24 adjusted diluted EPS growth in range of 8-10%
Themes, Trends, Market Conditions, and Sentiment: Paychex reported solid Q3 results with 7% total revenue growth and 8% growth in Management Solutions, despite the ERTC headwind. The company saw strong client retention, good product penetration, and higher revenue per client. PEO also performed well with continued momentum in worksite employee growth and strong insurance attachment.
The company is seeing some moderation in employment trends among small businesses but overall macro conditions remain relatively stable. Hiring challenges persist for Paychex’s clients, especially in finding qualified candidates. However, the company isn’t seeing broad-based layoffs or recessionary indicators.
Paychex provided a preliminary FY24 outlook, expecting 8-9% revenue growth and margin expansion despite a 2% ERTC headwind. The company remains focused on driving profitable growth through investments in technology, digital capabilities, and AI. Management believes Paychex is well-positioned entering the post-pandemic era as a more digitally enabled, agile company delivering more value to clients.
Notable quotes: • “The results we delivered this quarter demonstrate our ability to drive profitable growth even in uncertain times.” - John Gibson, CEO •“We’re focused on making the right investments to ensure we’re positioned to capture opportunities for long-term growth.” - John Gibson •“In this post-pandemic era, we are a fundamentally better positioned company. We’re more digitally enabled, more agile, more focused on delivering value for our clients.” - John Gibson