Paychex Earnings: HR Outsourcing, Client Funds Interest Drive Q4 Results

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Paychex (NASDAQ:PAYX) announced its Q4 and FY 2016 results on Thursday, June 30, reporting a steady 9% growth in net revenues to just over $750 million for the quarter. [1] The growth trend continued from previous quarters, as evidenced by the 8% annual growth in revenues to just under $3 billion for the fiscal year ended June. Much of the growth came from its HR outsourcing and services business, which were up by 13-14% for the quarter and the full year. Comparatively, its core payroll processing business were up by 5% and 4% to $430 million and $1.7 billion for the quarter and year, respectively. [2]

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HR outsourcing revenues have grown at over 15% over the last few years, with the company cementing its position as the market leader for HR outsourcing for small and medium sized businesses. The same trend was reflected in the payroll division, which observed a 10% increase in the number of clients served to 650,000 by the end of the year. Additionally, the interest earned on client funds was up by 10% for the full year – the first time in almost a decade – as the interest rate increase led to improved yields for the company.

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Paychex’s management expects the company to continue the growth spree in HR outsourcing and services revenues through fiscal 2017. Moreover, the consistent 2-4% increase in pricing for payroll processing services is likely to drive payroll revenues in the coming quarters.

PAYX_q4162In terms of bottom line growth, Paychex’s combined operating expenses were up by about 7% for the full year, leading to a 9% increase in operating income to $1.1 billion. Paychex’s company-wide EBITDA margin was up by about 60 basis points to 39%. Moreover, a mild increase in taxes led to 12% growth in net income to $757 million.PAYX_q4164

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Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Paychex.

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Notes:
  1. Paychex, Inc. Reports Fourth Quarter and Fiscal 2016 Results, Paychex Press Release, June 2016 []
  2. Paychex Q4 2016 Earnings Call Transcript, Seeking Alpha, July 2015 []
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