Paychex, Inc. Reports Second Quarter Results

Paychex, Inc. (“Paychex,” “we,” “our,” or “us”) (NASDAQ:PAYX) today announced total service revenue of $559.4 million for the three months ended November 30, 2012 (the “second quarter”), an increase of 5% from $535.0 million for the same period last year. Net income and diluted earnings per share both increased 5% to $147.9 million and $0.41 per share, respectively.

Martin Mucci, President and Chief Executive Officer, commented, “We made solid progress in the second quarter. While payroll services revenue grew modestly at 1.4%, impacted by client disruptions from Hurricane Sandy, Human Resource Services revenue grew at a double-digit rate as we continue to experience success in selling value-added solutions to our clients. Checks per payroll increased 1.2% for the quarter over the previous year. We are seeing good results from our selling efforts in the small-business market and are well-positioned for our peak selling season. In addition, our client retention levels remain near historic high rates generated by our employees' commitment to client satisfaction. During the quarter, we introduced our industry-leading online client report center and acquired ExpenseWire, an online expense management solution for our mid-market clients.”

Payroll service revenue increased 1% to $377.0 million for the second quarter compared to the same period last year. Checks per payroll increased 1.2% for the second quarter compared to 1.8% for the same period last year. Revenue per check grew modestly, as a result of price increases, partially offset by discounting. Growth in payroll service revenue was tempered by lost revenue from Hurricane Sandy, approximating 0.5% of payroll revenue growth, and the impact of client mix in the mid-market.

Human Resource Services (“HRS”) revenue increased 12% to $182.4 million for the second quarter compared to the same period last year. The following factors contributed to this growth:

• Retirement services revenue was positively impacted by client growth and an increase in the average asset value of retirement services client employees’ funds, offset partially by the impact from a shift in the mix of assets within these funds to investments that earn lower fees from external fund managers.
• Paychex HR Solutions revenue was positively impacted by price increases and growth in both clients and client employees. The rate of growth for Paychex HR Solutions revenue was tempered by fewer client employees within our professional employer organization, compared to the same period last year.
• Insurance services revenue continues to benefit from the growth in health and benefits services applicants and increases in both clients and premiums in workers’ compensation insurance services.

Total expenses increased 4% to $339.4 million for the second quarter compared to the same period last year. We continued to invest in product development and supporting technology, with those expenses growing at a faster rate than total expenses during the second quarter. This was offset by increased productivity within operations, which has allowed us to maintain solid operating margins.

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