Paychex (NASDAQ: PAYX) reported Q2 EPS of $0.73, $0.07 better than the analyst estimate of $0.66. Revenue for the quarter came in at $983.7 million versus the consensus estimate of $954 million.

Second Quarter Fiscal 2021 Key Points

• The Company raises guidance as second quarter results reflect sequential improvement in financial performance and key business metrics.
• Diluted earnings per share and adjusted diluted earnings per share(1) each increased 4% to $0.75 per share and $0.73 per share, respectively.
• Second quarter service revenue was consistent with the prior year period at $968.9 million, compared to a year-over-year decrease of 6% in the first quarter.
• Management Solutions revenue increased 1% to $732.8 million.
• Total revenue decreased 1% to $983.7 million.

Martin Mucci, President and Chief Executive Officer, commented, “Financial results for the second quarter showed continued recovery in our key business metrics. The effects of the COVID-19 pandemic impacted our results and year-over-year comparisons; however, client retention remains strong, and our sales performance has resulted in year-over-year growth in the number of clients sold and serviced. We remain focused on providing excellent customer service, human resource (“HR”) expertise, and product innovations to support our clients through the challenges of the pandemic. In addition, our margins have demonstrated sequential improvement as our cost-saving initiatives have proceeded as expected.”

Mucci added, “More than ever before, companies are turning to technology solutions to maintain operations, stay connected with employees, and keep their people productive. We recently introduced additional enhancements to our Paychex Flex® platform to help our clients manage risk, stay compliant, better assess performance, and adapt to mobile and artificial intelligence-driven trends. Headlining these product releases are an Apple Watch®/Google Assistant™ device integration allowing employees greater access to their information, a professional employer organization (“PEO”) Protection Plus Package to protect clients against unforeseen costs, and additional forward-looking solutions in our platform to help employers and their employees complete key tasks quickly, safely, and accurately in a paperless, mobile fashion. We believe our continuing investments in our service delivery platforms strongly position us to meet the demands of the current business environment and support employers no matter where they are in their HR journey.”

Outlook

Our outlook for the fiscal year ending May 31, 2021 (“fiscal 2021”) incorporates anticipated impacts resulting from the COVID-19 pandemic based on current assumptions and market conditions. Changes in the macroeconomic environment could alter our guidance. During the six months, we recognized one-time costs of $32.2 million related to the acceleration of cost-saving initiatives, including the long-term strategy to reduce our geographic footprint and headcount optimization. Our guidance for adjusted operating margin, adjusted EBITDA margin, and adjusted diluted earnings per share excludes these one-time costs. In addition, adjusted diluted earnings per share excludes the tax benefit on stock-based compensation payments of $15.5 million. We have updated our guidance as follows:

• Management Solutions revenue is anticipated to be in the range of (1%) to 1%;
• Total revenue is anticipated to be in the range of (3%) to flat;
• Adjusted operating margin(1) is anticipated to be approximately 36%;
• Adjusted EBITDA margin(1) is anticipated to be approximately 41%;
• Other expense, net is anticipated to be in the range of $25 million to $30 million;
• The effective income tax rate for fiscal 2021 is anticipated to be approximately 24%; and
• Adjusted diluted earnings per share(2) is anticipated to be in the range of (1%) to (4%).

Other aspects of our guidance for fiscal 2021 remain unchanged from what we provided previously.

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