Paychex, Inc. (the "Company," "Paychex," "we," "our," or "us") today reported results for the fiscal quarter ended August 31, 2024 (the "first quarter"). Results compared with the same period last year were as follows:

President and Chief Executive Officer, John Gibson commented, "We are off to a solid start in fiscal 2025 with 3% growth in total revenue during the first quarter. Excluding the impact of the expiration of the Employee Retention Tax Credit ("ERTC") program and one less payroll processing day, revenue growth was 7%. Despite these headwinds, we delivered earnings per share growth in the first quarter through strong expense discipline."

Mr. Gibson also noted, "Small and mid-sized businesses remain resilient as the U.S. labor market gradually returns to its pre-pandemic level and wage inflation continues to moderate. We continue to invest in our go to market capabilities and products to drive innovation to meet the realities of the post-pandemic marketplace. We are excited to announce the introduction of several new products: Paychex Flex^® Engage, Paychex Flex Perks, and Paychex Recruiting Copilot. These digital and artificial intelligence ("AI") driven solutions are designed to help our clients attract, retain, and engage their most critical asset, their workforce, and will strengthen our ability to achieve our mission to help businesses succeed."

First Quarter Business Highlights

Total revenue increased to $1.3 billion for the first quarter, growth of 3% over the prior year period. Highlights as compared with the corresponding prior year period are as follows:

• Management Solutions revenue increased 1% to $961.7 million for the first quarter primarily impacted by the following factors:
  • Growth in the number of clients served across our suite of human capital management ("HCM") solutions and client worksite employees for Human Resources ("HR") Solutions;
  • Higher product penetration, including HR Solutions and Retirement; and
  • Lower revenue from ancillary services, primarily due to the expiration of our ERTC Service.

• Professional Employer Organization ("PEO") and Insurance Solutions revenue increased 7% to $319.3 million for the first quarter primarily due to the following:
  • Growth in the number of average PEO worksite employees; and
  • Increase in PEO insurance revenues.

• Interest on funds held for clients increased 15% to $37.5 million for the first quarter primarily due to higher average interest rates and average investment balances.

Total expenses increased 3% to $771.8 million for the first quarter primarily due to the following:

• Increase in PEO direct insurance costs related to growth in average worksite employees and PEO insurance revenues; and
• Continued investment in technology, sales, and marketing.

Operating income grew 2% to $546.7 million for the first quarter. Operating margin (operating income as a percentage of total revenue) was 41.5% for the first quarter compared to 41.7% for the prior year period. Operating income was impacted by the expiration of the ERTC program and one less payroll processing day as compared with the prior year quarter.

Other income, net decreased 19% to $10.4 million for the first quarter primarily as a result of lower average investment balances on our corporate investments.

Our effective income tax rate was 23.3% for the first quarter compared to 23.7% for the prior year period. Both periods were impacted by the recognition of net discrete tax benefits related to employee stock-based compensation payments.

Diluted earnings per share increased 2% to $1.18 per share and adjusted diluted earnings per share⁽¹⁾ increased 2% to $1.16 for the first quarter.

Financial Position and Liquidity

Our financial position and cash flow generation remained strong during the first three months of the fiscal year. As of August 31, 2024, we had:

• Cash, restricted cash, and total corporate investments of $1.6 billion.
• Short-term and long-term borrowings, net of debt issuance costs, of $817.6 million.
• Cash flow from operations was $546.1 million for the first quarter.

Return to Stockholders During the First Quarter

• Paid cumulative dividends of $0.98 per share totaling $353.4 million.
• Repurchased 828,855 shares of our common stock for $104.0 million.

Non-GAAP Financial Measures

In addition to reporting net income and diluted earnings per share, which are U.S. GAAP measures, we present adjusted net income, adjusted diluted earnings per share, and earnings before interest, taxes, depreciation, and amortization ("EBITDA"), which are non-GAAP measures. We believe these additional measures are indicators of the performance of our core business operations period over period. Adjusted net income, adjusted diluted earnings per share, and EBITDA are not calculated through the application of U.S. GAAP and are not required forms of disclosure by the Securities and Exchange Commission ("SEC"). As such, they should not be considered a substitute for the U.S. GAAP measures of net income, and diluted earnings per share, and, therefore, they should not be used in isolation but in conjunction with the U.S. GAAP measures. The use of any non-GAAP measure may produce results that vary from the U.S. GAAP measure and may not be comparable to a similarly defined non-GAAP measure used by other companies.

Business Outlook

Our business outlook for the fiscal year ending May 31, 2025 ("fiscal 2025") incorporates current assumptions and market conditions. Changes in the macroeconomic environment could alter our guidance. With consideration of these impacts, we have updated our business outlook as follows:

• Interest on funds held for clients is now anticipated to be in the range of $145 million to $155 million.
• Other income, net is now anticipated to be in the range of $30 million to $35 million.
• Other aspects of our guidance for fiscal 2025 remain unchanged from what we provided previously.

Corporate Responsibility

As part of what it means to be Paychex, we are focusing our corporate responsibility efforts on actions we can take to create positive impact. To learn more about our latest initiatives, please visit https://www.paychex.com/corporate/corporate-responsibility. The information available on our website is not a part of, and is not incorporated into, this press release.

Quarterly Report on Form 10-Q ("Form 10-Q")

We anticipate filing our Form 10-Q for the first quarter within the next day, and it will be available at https://investor.paychex.com. This press release should be read in conjunction with the Form 10-Q and the related Notes to Consolidated Financial Statements and Management's Discussion and Analysis of Financial Condition and Results of Operations contained in that Form 10-Q.

Webcast Details

Interested parties may access the webcast of our Earnings Release Conference Call, scheduled for October 01, 2024, at 9:30 a.m. Eastern Time, at https://investor.paychex.com. The webcast will be archived for approximately 90 days. Our news releases, current financial information, SEC filings, and investor presentations are also accessible at https://investor.paychex.com.

About Paychex

Paychex, Inc. (Nasdaq: PAYX) is an industry-leading HCM company delivering a full suite of technology and advisory services in human resources, employee benefit solutions, insurance, and payroll. The company serves over 745,000 customers in the U.S. and Europe and pays one out of every 12 American private sector employees. The more than 16,000 people at Paychex are committed to helping businesses succeed and building thriving communities where they work and live. To learn more, visit www.paychex.com.

Cautionary Note Regarding Forward-Looking Statements

Certain written statements in this press release may contain, and members of management may from time to time make or discuss statements which constitute, "forward-looking statements" within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by such words and phrases as "expect," "outlook," "will," guidance," "projections," "anticipate," "believe," "could," "design," "may," "possible," "potential," "should" and other similar words or phrases. Forward-looking statements include, without limitation, all matters that are not historical facts. Examples of forward-looking statements include, among others, statements we make regarding operating performance, events, or developments that we expect or anticipate will occur in the future, including statements relating to our outlook, revenue growth, earnings, earnings-per-share growth, and similar projections.

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 known and unknown uncertainties, risks, changes in circumstances, and other factors that are difficult to predict, many of which are outside our control. Our actual performance and outcomes, including without limitation, our actual results and financial condition, may differ materially from those indicated in or suggested by the forward-looking statements. Therefore, you should not rely on any of these forward-looking statements. Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include, among others, the following:

• our ability to keep pace with changes in technology or provide timely enhancements to our solutions and support;
• software defects, undetected errors, and development delays for our solutions;
• the possibility of cyberattacks, security vulnerabilities or Internet disruptions, including data security and privacy leaks, and data loss and business interruptions;
• the possibility of failure of our business continuity plan during a catastrophic event;
• the failure of third-party service providers to perform their functions;
• the possibility that we may be exposed to additional risks related to our co-employment relationship with our PEO business;
• changes in health insurance and workers’ compensation insurance rates and underlying claim trends;
• risks related to acquisitions and the integration of the businesses we acquire;
• our clients’ failure to reimburse us for payments made by us on their behalf;
• the effect of changes in government regulations mandating the amount of tax withheld or the timing of remittances;
• our failure to comply with covenants in our debt agreements;
• changes in governmental regulations, laws, and policies;
• our ability to comply with U.S. and foreign laws and regulations;
• our compliance with data privacy and artificial intelligence laws and regulations;
• our failure to protect our intellectual property rights;
• potential outcomes related to pending or future litigation matters;
• the impact of macroeconomic factors on the U.S. and global economy, and in particular on our small- and medium-sized business clients;
• volatility in the political and economic environment, including inflation and interest rate changes;
• our ability to attract and retain qualified people; and
• the possible effects of negative publicity on our reputation and the value of our brand.

Any of these factors, as well as such other factors as discussed in our SEC filings, could cause our actual results to differ materially from our anticipated results. The information provided in this document is based upon the facts and circumstances known as of the date of this press release, and any forward-looking statements made by us in this document speak only as of the date on which they are made. Except as required by law, we undertake no obligation to update these forward-looking statements after the date of issuance of this press release to reflect events or circumstances after such date, or to reflect the occurrence of unanticipated events.

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