Paychex (NASDAQ: PAYX) reported Q2 EPS of $0.65, $0.02 better than the analyst estimate of $0.63. Revenue for the quarter came in at $858.9 million versus the consensus estimate of $858.62 million.

Martin Mucci, President and Chief Executive Officer, commented, “The second quarter marked solid progress across our major human capital management product lines. In particular, our administrative services organization, retirement services, and time and attendance solutions performed well. We continued to experience strong demand for our professional employer organization (“PEO”) services and recently announced our agreement to acquire Oasis Outsourcing Group Holdings, L.P. (“Oasis”), the nation’s largest privately owned PEO and an industry leader in providing human resources (“HR”) outsourcing services. This acquisition will significantly advance Paychex’s leadership position in HR outsourcing and reinforces Paychex’s commitment to meet the HR technology and advisory needs of our clients and their employees.”

Mucci added, “The workplace environment is changing for many reasons, primarily due to advancements in technology coupled with an increasingly tight labor market. We continue to deliver the tools and insights necessary for our clients to succeed today and in the future. Recent enhancements to Paychex Flex® simplify the complexity of finding and retaining talent, optimize HR and overall business performance, and remove obstacles that stand in the way of our client’s productivity.”

Outlook

Our outlook for the fiscal year ending May 31, 2019 (“fiscal 2019”), is based upon current market expectations and economic conditions continuing with no significant changes. Our guidance has been revised for fiscal 2019. Excluding the anticipated impact related to the acquisition of Oasis, our revised guidance is as follows:

• Interest on funds held for clients is expected to increase in the range of 20% to 25%;
• Investment income, net is anticipated to be in the range of $10 million to $15 million;
• Net income is expected to increase approximately 4%;
• Diluted earnings per share is expected to increase approximately 4%; and
• Adjusted diluted earnings per share (non-GAAP) (1) is expected to increase in the range of 11% to 12%.

Other aspects of our guidance for fiscal 2019 remain unchanged from what we previously disclosed. This includes the following:

• Management Solutions revenue is anticipated to increase approximately 4%;
• PEO and Insurance Services revenue is anticipated to increase in the range of 18% to 20%;
• Total revenue, including interest on funds held for clients, is expected to increase in the range of 6% to 7%;
• Operating income, as a percent of total revenue, is anticipated to be approximately 37%;
• The effective income tax rate for fiscal 2019 is expected to be approximately 24%; and
• Adjusted net income (non-GAAP) (1) is expected to increase in the range of 11% to 12%.

We anticipate that the acquisition of Oasis, which is expected to close during our third fiscal quarter ending February 28, 2019, will have an incremental impact to total revenue in the range of $155 million to $175 million in fiscal 2019. Excluding one-time costs related to the acquisition, Oasis is anticipated to have minimal impact on earnings per share. One-time acquisition costs are anticipated to impact diluted earnings per share by approximately $0.03 per share in the balance of fiscal 2019.

1. Adjusted net income and adjusted diluted earnings per share are non-GAAP measures. Please refer to the “Non-GAAP Financial Measures” section starting on the previous page of this press release for a discussion of these non-GAAP measures. Fiscal 2019 growth rates for these non-GAAP measures are based on fiscal 2018 adjusted net income of $922.9 million and adjusted diluted earnings per share of $2.56, which includes the impact of the restatement of fiscal 2018 results as it relates to our adoption of ASC Topic 606 on June 1, 2018. No assumptions were made in regards to discrete tax items in fiscal 2019 for employee stock-based compensation payments.

For earnings history and earnings-related data on Paychex (PAYX) click here.