top-rated free essay

Paychex Market Analysis

By Shawn-Liu Nov 03, 2014 8699 Words
COMPANY PROFILE

Paychex, Inc.

REFERENCE CODE: 499B8973-EA05-4D2D-B931-F3AE0DDB77CA
PUBLICATION DATE: 26 Feb 2014
www.marketline.com
COPYRIGHT MARKETLINE. THIS CONTENT IS A LICENSED PRODUCT AND IS NOT TO BE PHOTOCOPIED OR DISTRIBUTED.

Paychex, Inc.
TABLE OF CONTENTS

TABLE OF CONTENTS
Company Overview..............................................................................................3 Key Facts...............................................................................................................3 Business Description...........................................................................................4 History...................................................................................................................6 Key Employees...................................................................................................10 Key Employee Biographies................................................................................12 Major Products and Services............................................................................18 Revenue Analysis...............................................................................................19 SWOT Analysis...................................................................................................20 Top Competitors.................................................................................................25 Company View.....................................................................................................26 Locations and Subsidiaries...............................................................................31

Paychex, Inc.
© MarketLine

Page 2

Paychex, Inc.
Company Overview

COMPANY OVERVIEW
Paychex, Inc. (Paychex or “the company”) is a provider of payroll, human resource, and benefits outsourcing solutions for small to medium-sized businesses. The company operates in the US and Germany. It is headquartered in Rochester, New York and employed approximately 12,400 people as of May 31, 2013.

The company recorded revenues of $2,326.2 million during the financial year ended May 2013 (FY2013), an increase of 4.3% over FY2012. The operating profit of the company was $904.8 million in FY2013, an increase of 6% over FY2012. The net profit was $569 million in FY2013, an increase of 3.8% over FY2012.

KEY FACTS
Head Office

Paychex, Inc.
911 Panorama Trail S.
Rochester
New York 14625 0397
USA

Phone

1 585 385 6666

Fax
Web Address

http://www.paychex.com

Revenue / turnover 2,326.2
(USD Mn)
Financial Year End

May

Employees

12,400

NASDAQ National
Market Ticker

PAYX

Paychex, Inc.
© MarketLine

Page 3

Paychex, Inc.
Business Description

BUSINESS DESCRIPTION
Paychex, Inc. (Paychex or “the company”) is a provider of professional services to small to medium-sized businesses. The company offers payroll, human resource, and benefits outsourcing solutions. As of May 31, 2013, Paychex provided services to over 570,000 clients, including approximately 2,000 clients through its four offices in Germany. The company operates through a single segment. However, it has classified its services into two categories: payroll and human resource (HR) services.

Paychex’s payroll service includes the calculation, preparation, and delivery of employee payroll checks; production of internal accounting records and management reports; preparation of federal, state, and local payroll tax returns; and collection and remittance of clients’ payroll obligations. The company’s payroll services support the small business market through its core payroll and SurePayroll products. Mid-market companies are primarily serviced through Paychex’s Major Market Services (MMS) payroll product. The company offers Software-as-a-Service (SaaS) solution to meet the payroll and human resource administrative needs of its MMS clients. In addition, Paychex also offers ancillary services to its clients. The company’s ancillary services include Paychex HR Online, an internet-based human resource management system that offers tools for managing employee benefits, personnel information, and critical human resource compliance and reporting needs; BeneTrac, an employee benefits management and administration system that offers its MMS clients a solution for streamlined benefits management; Paychex Time and Labor Online, a solution for time and attendance process; Paychex Expense Manager, an integrated expense management solution that allows clients to control discretionary spending; and applicant tracking service.

In addition, Paychex offers online payroll services through Paychex Online, an internet portal, which offers a suite of self-service, interactive services and products. These include Paychex Online Payroll, Internet Time Sheet, Paychex Online Reports, and General Ledger Reporting Service. The company also offers self-service and mobile applications for small business through its SurePayroll SaaS product offering. Paychex’s other payroll services include payroll tax administration services, employee payment services, and regulatory compliance services.

The company’s HR services include Paychex HR Solutions, an HR outsourcing solutions provider that addresses the outsourcing of employer and employee administrative needs of businesses. Its Paychex HR Solutions offering is available as an administrative services organization (ASO) and as a professional employer organization (PEO). Both options offer businesses a combined package of services that includes payroll, employer compliance, human resource and employee benefits administration, risk management outsourcing, and on-site availability of a professionally trained HR representative.

Paychex, Inc.
© MarketLine

Page 4

Paychex, Inc.
Business Description

Paychex’s retirement services product line offers options to clients, including 401(k) plans, 401(k) SIMPLE plans, SIMPLE IRAs, 401(k) plans with safe harbor provisions, profit sharing plans, and money purchase plans. These services provide plan implementation, ongoing compliance with government regulations, employee and employer reporting, participant and employer online access, electronic funds transfer, and other administrative services. In addition to the above HR services, the company operates a licensed insurance agency, Paychex Insurance Agency that provides insurance through several carriers. Its insurance offerings include property and casualty (P&C) coverage such as workers’ compensation; business-owner policies; commercial auto; and health and benefits coverage, including health, dental, vision, and life. Paychex also offers online HR administration software products for employee benefits management and administration and time and attendance solutions. Paychex HR Online offers tools for managing employee benefits, personnel information, and human resource compliance and reporting. The company’s other human resource services and products include the outsourcing of plan administration under section 125 of the Internal Revenue Code; state unemployment insurance services; and employee handbooks, management manuals, and personnel and required regulatory forms.

Paychex, Inc.
© MarketLine

Page 5

Paychex, Inc.
History

HISTORY
Thomas Golisano founded Paychex, Inc. (Paychex or “the company”) as Paymaster in 1971 in Rochester, New York, the US. In 1988, the company started its personal services division. In the following year, the company reached the 100,000 clients mark and opened its Taxpay division. This expansion continued into the 1990s. In 1991, Paychex formed the human resource services (HRS) division, with new offerings such as employee handbooks, employee evaluation, employee testing tools, insurance products and services, and section 125 cafeteria plans. Paychex acquired two California based companies, Pay-Fone and Payday in 1995. The company expanded its client base to 210,000 clients and its Taxpay division reached 100,000 clients mark. During 1995, Paychex's HRS division introduced its 401(k) Recordkeeping service. In 1996, the company acquired California-based Olsen Computer Systems and Florida-based National Business Solutions. Paychex acquired Advantage Payroll Services (Advantage), a provider of payroll and tax-filing services, in 2002. The acquisition of Advantage provided Paychex with more than 49,000 new clients.

Paychex acquired InterPay, a wholly owned subsidiary of FleetBoston Financial (a Boston, Massachusetts–based bank), in 2003, for $182.3 million. In the same year, the company was selected by the American Institute of Certified Public Accountants (AICPA) for its payroll services. Subsequently, Paychex acquired Stromberg's (a provider of time and attendance and workforce management solutions) 'Time in a Box' product line, a Windows-based time and attendance solution for small to medium-sized enterprises (SMEs).

In 2005, the company and the American Bar Association (ABA), a voluntary bar association of lawyers and law students, teamed up to offer attorneys nationwide free access to continuing legal education (CLE) through a series of live teleconferences. In the same year, Paychex launched Accountant Advisory Boards in three cities in the US, further accentuating its focus on partnering with accounting professionals who play a vital role in influencing the purchase decisions of small business owners.

Paychex added Paychex COBRA Administration to its suite of human resource services for SMEs, in 2006. In the following year, the company introduced Tax Credit Services, a product that provided SMEs across the US with a tool to help them identify and apply for wage-based tax credits they may be eligible to receive. Subsequently, Paychex acquired Hawthorne Benefit Technologies, a privately held company in San Diego, California, and BeneTrac, a provider of online employee benefit administration solutions.

In 2007, the company launched Paychex workers' compensation payment service, which is an expanded service to include Paychex major market services (MMS) clients. In the same year, Paychex and Taleo, a provider of on-demand talent management solutions, formed a strategic

Paychex, Inc.
© MarketLine

Page 6

Paychex, Inc.
History

alliance to allow SMEs to compete in the recruiting and retention of top talent. Subsequently, Paychex and BeneTrac integrated Paychex preview payroll software and BeneTrac's web-based benefits enrollment and administration technology. Later in the year, Paychex launched the Paychex accountant knowledge center, an online resource center available on the accounting portal of www.paychex.com.

The company launched a new debit card that offers clients' employees an access to their flexible spending account (FSA) funds, in 2008. In the same year, Paychex and ExpenseWire, a provider of on-demand expense management solutions, launched Paychex expense manager, an integrated payroll and expense management solution that helps SMEs control discretionary spending while giving their employees the convenience of preparing and submitting expense reports online. In 2009, Paychex expanded its time and attendance product line with the addition of Time and Labor Online, an internet-based time and labor management system that provides businesses with a way to automate time and attendance processes. In the same year, Paychex sold its subsidiary, Stromberg, a time and attendance company serving mid to large sized enterprises, to Kronos, a provider of workforce management solutions.

The company partnered with Points North (a Minnesota-based software firm) data integration services, to expand its federal certified payroll offerings to include state- and local-level solutions for companies that receive government funding, in 2010. In the same year, Paychex launched a new web page and savings service which provides the latest information available on the HIRE Act, and features an interactive calculator, which allows business owners to calculate their potential tax savings. In 2011, the company acquired SurePayroll, a provider of software-as-a-service (SaaS) payroll processing for small businesses. In the same year, Paychex launched Paychex Smart Time, a product that offers time clocks for small businesses. Subsequently, the company acquired ePlan Services, a provider of recordkeeping and administrative solutions to the defined contribution marketplace. During the same year, Paychex extended its strategic alliance with CPA2Biz, a subsidiary of the AICPA, the world's largest member association representing the accounting profession, until 2016. The company expanded its SaaS product offerings with the launch of the Paychex Online Mobile application for the Apple iPad.The company launched a new website, BuildMyBiz.com, which provides tools and resources for starting, growing, and managing a business. Paychex acquired Icon Time Systems, a provider of time and attendance solutions for small businesses, in the first quarter of 2012. In the same quarter, the company launched Paychex Advisor Select 401(k), an offering that is specifically designed for fee-based financial advisors. In the same quarter, Paychex introduced its Business Insurance Payment Service for business owner, commercial auto, and umbrella policies sold by Paychex Insurance Agency through the Hartford, Guard Insurance Group, and Travelers insurance companies. The company launched its Paychex Mobile smartphone application for iPhone, Android, and BlackBerry devices in the second quarter of 2012. In the following quarter, Paychex added Dimensional Fund Advisor funds to the Paychex Open Fund Select and Advisor Select platforms.

Paychex, Inc.
© MarketLine

Page 7

Paychex, Inc.
History

In the fourth quarter of 2012, the company launched Paychex Report Center, a shop for standard, on-demand, and ad-hoc reporting; data extract templates; and more. In the same quarter, SCORE, a nonprofit association, entered into a partnership with Paychex, to assist small business owners to learn about the payroll and human resource policies.

The company launched its new and improved BuildMyBiz.com, an online resource for entrepreneurs and small business owners, in the last quarter of 2012. In the same quarter, Paychex launched its redesigned Paychex Accountant Knowledge Center, a free online resource that provides information and time-saving online tools for accounting professionals. In the same quarter, the company acquired ExpenseWire, a provider of expense report automation solution for small and medium-sized businesses, from Rearden Commerce.

In March 2013, the company partnered with FSAstore.com, an online store stocked exclusively with flexible spending account (FSA)-eligible products and services, to provide participants in the Paychex FSA, a convenient way to use their FSA funds.

Subsequently, in June 2013, Paychex acquired HR Services, a human resource management solution provider, and myStaffingPro, a SaaS applicant tracking suite. myStaffingPro is a web-based system that offers social recruiting, applicant tracking, and onboarding in a solution. This acquisition is expected to strengthen the company’s portfolio of human resource service solutions, and provide an applicant tracking and recruiting services solution for its clients. Further, in August 2013, Paychex and Semco Partners, a Sao Paulo-based portfolio management and investment company, entered into a joint venture agreement to expand the company’s services into Brazil.

In October 2013, the company launched Paychex Single Sign-On, a SaaS platform. All Paychex services are accessible on this single cloud-based platform. During the same month, the company formed a partnership with Kashoo, a provider of cloud accounting software. Kashoo helps small business owners manage their business finances and collaborate with their accountants. With this partnership, Paychex expands the products and services it provides to small and mid-sized clients and the accounting community. In the same month, the company also partnered with Biz2Credit, an online credit resource for small businesses, to offer the Paychex Small Business Loan Resource Center.The Paychex Small Business Loan Resource Center is an online resource that gives business owners access to lenders offering loan options that fit businesses’ specific financing needs. In the following month, Paychex introduced a new product line with the launch of Paychex Accounting Online, a SaaS accounting solution for small businesses that is accessible directly through the cloud. In the same month, the company added the Mid Atlantic Trust Company’s (a non-depository state chartered trust company) ModelxChange web-based model portfolios for retirement services clients. ModelxChange provides an advisor with the ability to choose from a suite of pre-selected portfolios from money management firms and helps eliminate the process of coordinating all the moving parts required for a plan recordkeeper to manage an investment model.

Paychex, Inc.
© MarketLine

Page 8

Paychex, Inc.
History

Subsequently, in January 2014, the company in partnership with Elavon, a global payments provider, introduced the Paychex Payment Processing Services, a suite of payment processing solutions, including credit and debit card processing, mobile and online payment services, and point-of-sale (POS) solutions, designed to meet the needs of small businesses.

Paychex, Inc.
© MarketLine

Page 9

Paychex, Inc.
Key Employees

KEY EMPLOYEES
Name

Job Title

Board

Martin Mucci

President and Chief Executive
Officer

Executive Board

B. Thomas Golisano

Chairman

Non Executive Board

237500 USD

Joseph G. Doody

Director

Non Executive Board

193551 USD

David J. S. Flaschen

Director

Non Executive Board

226051 USD

Phillip Horsley

Director

Non Executive Board

196051 USD

Grant M. Inman

Director

Non Executive Board

206051 USD

Pamela A. Joseph

Director

Non Executive Board

198551 USD

Joseph M. Tucci

Director

Non Executive Board

203551 USD

Joseph M. Velli

Director

Non Executive Board

201051 USD

Efrain Rivera

Senior Vice President, Chief
Financial Officer, and Treasurer

Senior Management

1457809 USD

Mark A. Bottini

Senior Vice President, Sales

Senior Management

1448901 USD

Michael E. Gioja

Senior Vice President, Information
Technology, Product Management
and Development

Senior Management

1368448 USD

Laurie L. Zaucha

Vice President, Human Resources
and Organizational Development

Senior Management

Andrew B. Childs

Vice President, Marketing

Senior Management

Kevin N. Hill

Vice President, Insurance and
Senior Management
Human Resource Solutions Services

Sanjay Hiranandani

Vice President, Information
Technology Operations

Bryan R. Hodge

Vice President, Eastern Operations Senior Management

Laurie A. Maffett

Vice President, Centralized Product Senior Management
Operations and Support

Robert Morin

Vice President, Major Market
Services Sales

Senior Management

John B. Gibson

Senior Vice President, Service

Senior Management

Lonny C. Ostrander

Vice President, Human Resource
Services Sales

Senior Management

Neil F. Rohrer

Vice President, Core Payroll Sales, Senior Management
Eastern US

Stephanie L. Schaeffer

Vice President and Chief Legal
Officer

Paychex, Inc.
© MarketLine

Compensation
5260278 USD

Senior Management

883926 USD

Senior Management

Page 10

Paychex, Inc.
Key Employees

Name

Job Title

Terrence Sukalski

Vice President, Core Payroll Sales, Senior Management
Central US

Thomas P. Szwak

Vice President, Western Operations Senior Management

Jennifer R. Vossler

Vice President and Controller

Lisa Williams-Garcia

Vice President, Core Payroll Sales, Senior Management
Western US

Paychex, Inc.
© MarketLine

Board

Compensation

Senior Management

Page 11

Paychex, Inc.
Key Employee Biographies

KEY EMPLOYEE BIOGRAPHIES
Martin Mucci
Board: Executive Board
Job Title: President and Chief Executive Officer
Since: 2010
Age: 53
Mr. Mucci has been the President and Chief Executive Officer at Paychex since 2010. He joined the company as the Senior Vice President of Operations in 2002. Prior to joining Paychex, Mr. Mucci served as the President of Telephone Operations at Frontier Communications, and the Chief Executive Officer at Frontier Telephone.

B. Thomas Golisano
Board: Non Executive Board
Job Title: Chairman
Age: 71
Mr. Golisano serves as the Chairman at Paychex. Previously, he served as the President and Chief Executive at Paychex until 2004. Mr. Golisano currently serves on the Board of Trustees at the Rochester Institute of Technology. He also serves as a Director at several non-profit organizations and private companies, and is the Founder and Member of the Board of Trustees at the B. Thomas Golisano Foundation.

Joseph G. Doody
Board: Non Executive Board
Job Title: Director
Since: 2010
Age: 61
Mr. Doody has been a Director at Paychex since 2010. He has been the President at North American Commercial of Staples since 2013 and prior to this position, he served as the President at North American Delivery of Staples. From 1974 through 1998, Mr. Doody held several managerial positions at Eastman Kodak Company, most recently as the General Manager and Vice President, North America, Office Imaging. He serves as a Director at Casella Waste Systems and is a Member of the Executive Advisory Committee for the Simon Graduate School of Business at the University of Rochester.

David J. S. Flaschen

Paychex, Inc.
© MarketLine

Page 12

Paychex, Inc.
Key Employee Biographies

Board: Non Executive Board
Job Title: Director
Since: 1999
Age: 57
Mr. Flaschen has been a Director at Paychex since 1999. He is an investor and advisor to several private companies providing business, marketing, and information services. From 2005 through 2011, Mr. Flaschen was a Partner at Castanea Partners.

Phillip Horsley
Board: Non Executive Board
Job Title: Director
Since: 2011
Age: 74
Mr. Horsley has been a Director at Paychex since 2011. He is the Founder at Horsley Bridge Partners. Mr. Horsley was a Director at the company from 1982 through 2009, and was reappointed to the Board in 2011.

Grant M. Inman
Board: Non Executive Board
Job Title: Director
Since: 1983
Age: 71
Mr. Inman has been a Director at Paychex since 1983. He is the Founder and General Partner at Inman Investment Management. Mr. Inman serves as a Director at Lam Research and several private companies. He is a Trustee of the University of California, Berkeley Foundation. Mr. Inman was a Director at Wind River Systems until 2009.

Pamela A. Joseph
Board: Non Executive Board
Job Title: Director
Since: 2005
Age: 54
Ms. Joseph has been a Director at Paychex since 2005. She is the Vice Chairman at US Bancorp Payment Services and the Chairman at Elavon (formerly NOVA Information Systems). Ms. Joseph also serves as a Director at Centene.

Paychex, Inc.
© MarketLine

Page 13

Paychex, Inc.
Key Employee Biographies

Joseph M. Tucci
Board: Non Executive Board
Job Title: Director
Since: 2000
Age: 66
Mr. Tucci has been a Director at Paychex since 2000. He has been the Chairman of the Board of Directors at EMC since 2006. Mr. Tucci has also been the Chief Executive Officer and President at EMC. He also serves as the Chairman of the Board of Directors at VMware.

Joseph M. Velli
Board: Non Executive Board
Job Title: Director
Since: 2007
Age: 55
Mr. Velli has been a Director at Paychex since 2007. He has been the Chairman and Chief Executive Officer at BNY ConvergEx Group since 2006. Prior to the formation of BNY ConvergEx Group, Mr. Velli served as the Senior Executive Vice President at the Bank of New York. He currently serves as a Director at E*Trade Financial.

Efrain Rivera
Board: Senior Management
Job Title: Senior Vice President, Chief Financial Officer, and Treasurer Since: 2011
Age: 56
Dr. Rivera has been the Senior Vice President, Chief Financial Officer, and Treasurer at Paychex since 2011. He previously served as the Corporate Vice President and Chief Financial Officer at Bausch & Lomb. Dr. Rivera also served as the Vice President of Finance and Administration at Houghton College in Western New York.

Mark A. Bottini
Board: Senior Management
Job Title: Senior Vice President, Sales
Since: 2011
Age: 52

Paychex, Inc.
© MarketLine

Page 14

Paychex, Inc.
Key Employee Biographies

Mr. Bottini has been the Senior Vice President, Sales at Paychex since 2011. Prior to this, he served as the Vice President of Sales at Ricoh. Before that, Mr. Bottini served in a variety of sales leadership and field management roles at IKON Office Solutions.

Michael E. Gioja
Board: Senior Management
Job Title: Senior Vice President, Information Technology, Product Management and Development Since: 2011
Age: 55
Mr. Gioja has been the Senior Vice President, Information Technology, Product Management and Development at Paychex since 2011. He joined the company as the Vice President of Product Management in 2008. Previously, Mr. Gioja was the Chief Information Officer and Executive Vice President of Products and Services at Workstream.

Laurie L. Zaucha
Board: Senior Management
Job Title: Vice President, Human Resources and Organizational Development Since: 2011
Age: 48
Ms. Zaucha has been the Vice President, Human Resources and Organizational Development at Paychex since 2011. Previously, she served as the Senior Vice President of Human Resources at Paetec Holding. Prior to that, Ms. Zaucha was the Vice President at Bausch & Lomb. She also held senior management positions in human resources at Footstar, Starbucks, and Pizza Hut.

Andrew B. Childs
Board: Senior Management
Job Title: Vice President, Marketing
Since: 2011
Mr. Childs has been the Vice President, Marketing at Paychex since 2011. Prior to this, he served as the Vice President of Strategy, Solutions, and Marketing for Management Services at Pitney Bowes. Previously, Mr. Childs worked at Mercer, where he led six marketing teams in the Americas. He also worked at Automatic Data Processing where he served as the Vice President with responsibility for marketing, business development, client management, and marketing strategy.

Kevin N. Hill
Board: Senior Management

Paychex, Inc.
© MarketLine

Page 15

Paychex, Inc.
Key Employee Biographies

Job Title: Vice President, Insurance and Human Resource Solutions Services Since: 2011
Age: 54
Mr. Hill has been the Vice President, Insurance and Human Resource Solutions Services at Paychex since 2011. He joined the company in 2010 as the Vice President of Insurance Sales. Mr. Hill also serves as the President at Paychex Insurance Agency, and holds executive leadership positions at BeneTrac. Prior to joining Paychex, he was the President and Chief Operating Officer at Excellus BlueCross BlueShield.

Sanjay Hiranandani
Board: Senior Management
Job Title: Vice President, Information Technology Operations Since: 2011
Mr. Hiranandani has been the Vice President, Information Technology Operations at Paychex since 2011. Previously, he served as the Senior Vice President and Chief Technology Officer at PAETEC Holding. Prior to joining PAETEC, Mr. Hiranandani was the Vice President of advanced technologies at TeleBeam. Before that, he was the Lead Network Architect at Cornell University.

Bryan R. Hodge
Board: Senior Management
Job Title: Vice President, Eastern Operations
Since: 2009
Mr. Hodge has been the Vice President, Eastern Operations at Paychex since 2009. Prior to this, he served as the Director of Paychex Premier Human Resources. Mr. Hodge previously served in several senior positions at Advantage Payroll Services, which was acquired by Paychex in 2002. Earlier in his career, he served in sales management positions at G.H. Bass and Company and Limited Brands.

Laurie A. Maffett
Board: Senior Management
Job Title: Vice President, Centralized Product Operations and Support Since: 2011
Mr. Maffett has been the Vice President, Centralized Product Operations and Support at Paychex since 2011. She joined the company as the Director of Human Resource Service Product Compliance, and most recently served as the Director of HRS 401k/S125 administration. Prior to joining Paychex, Ms. Maffett was the Vice President of regulatory and carrier services at Frontier Communications.

Paychex, Inc.
© MarketLine

Page 16

Paychex, Inc.
Key Employee Biographies

Robert Morin
Board: Senior Management
Job Title: Vice President, Major Market Services Sales
Since: 2013
Mr. Morin has been the Vice President, Major Market Services Sales at Paychex since 2013. He joined the company as the Vice President of Core Sales in 2012. Previously, Mr. Morin served as the Chief Sales Officer at Empower Software. Before that, he served for 21 years at Automatic Data Processing.

Paychex, Inc.
© MarketLine

Page 17

Paychex, Inc.
Major Products and Services

MAJOR PRODUCTS AND SERVICES
Paychex, Inc. (Paychex or “the company”) is a provider of payroll, human resource, and benefits outsourcing solutions for small to medium-sized businesses. The company's key products and services include the following:

Payroll processing
Payroll tax administration services
Employee payment services
Regulatory compliance services (new-hire reporting and garnishment processing) Paychex human resource (HR) solutions
Retirement services administration
Insurance services
eServices
Other human resource services and products

Paychex, Inc.
© MarketLine

Page 18

Paychex, Inc.
Revenue Analysis

REVENUE ANALYSIS
Overview
The company recorded revenues of $2,326.2 million during the financial year ended May 2013 (FY2013), an increase of 4.3% over FY2012. For FY2013, the company derived almost 99% of its revenues from the US market.

Paychex operates through a single segment. However, the company reported revenues in terms of services category: payroll services (67.4% of the total revenues during FY2013) and human resource services (32.6%).

*Revenues by service
In FY2013, the payroll services category recorded revenues of $1,539.2 million, an increase of 1.9% over FY2012.
The human resource services category recorded revenues of $746 million in FY2013, an increase of 10.3% over FY2012.
*Interest on funds held for clients are excluded from revenues by service because of which the total revenues do not match.
Revenues by geography
In FY2013, the company derived almost 99% of its revenues from the US market, with Germany accounting for less than 1% of its total revenue.

Paychex, Inc.
© MarketLine

Page 19

Paychex, Inc.
SWOT Analysis

SWOT ANALYSIS
Paychex, Inc. (Paychex or “the company”) is a provider of payroll, human resource, and benefits outsourcing solutions for small to medium-sized businesses. Significant market position coupled with robust client retention provides a strong base for driving growth as the company is well positioned to cross sell across a large customer base. However, high competition may erode the company's market share and client base which will further impact its revenue growth and margins. Strengths

Weaknesses

Significant market position and strong client
retention
Broad portfolio of products and services
High margins compared to peers

Overdependence on the US market

Opportunities

Threats

Expansion through acquisitions and
partnerships
New product offerings
Positive outlook for HRO market

Highly competitive markets
Rapid technological changes
Government regulations

Strengths

Significant market position and strong client retention
Paychex has a significant market position in the markets it operates. The company serves a diverse base of small and medium sized clients operating in a broad range of industries located throughout the US. At the end of FY2013, the company serviced approximately 570,000 clients. The company also has high client retention, with approximately 81% of its clients giving repeat business in FY2013. Moreover, with more than 62,000 plans, Paychex is the recordkeeper for approximately one of every ten 401(k) plans in the country, and is the largest 401(k) recordkeeper in the US by number of plans. At the end of FY2013, the asset value of client employee 401(k) funds externally managed totaled approximately $19.3 billion.

In addition, the company's HR outsourcing solution, Paychex HR Solutions and its professional employer organization, Paychex Business Solutions, served 672,000 client employees in FY2013. Also, approximately 108,000 clients have appointed Paychex Insurance Agency as their agent for servicing business insurance needs as of FY2013. The company has a large client base which can be leveraged to drive cross selling opportunities. High retention rate further indicates the popularity

Paychex, Inc.
© MarketLine

Page 20

Paychex, Inc.
SWOT Analysis

of the company's services among its clients and also that the company was able to successfully retain clients in a competitive market.
Broad portfolio of products and services
The company offers a broad portfolio of products and services. Paychex’s payroll service includes the calculation, preparation, and delivery of employee payroll checks; production of internal accounting records and management reports; preparation of federal, state, and local payroll tax returns; and collection and remittance of clients’ payroll obligations. It also offers Preview MMS software that provides payroll solution and allows smooth integration with other Paychex service offerings. The company also offers ancillary services under the brand names of Paychex HR Online, BeneTrac, Paychex Time and Labor Online, and Paychex Expense Manager. In addition, Paychex’s other payroll services include payroll tax administration services, employee payment services, and regulatory compliance services.

The company’s HR services include Paychex HR Solutions, an HR outsourcing solutions provider that addresses the outsourcing needs of employer and employee administrative practices in the businesses. It also offers retirement services product line; and operates a licensed insurance agency Paychex Insurance Agency that provides insurance through several carriers. Paychex also offers online HR administration software products for employee benefits management and administration and time and attendance solutions. Paychex HR Online offers tools for managing employee benefits, personnel information, and human resource compliance and reporting. The company’s other human resource services and products include the outsourcing of plan administration under section 125 of the Internal Revenue Code; state unemployment insurance services; and employee handbooks, management manuals, and personnel and required regulatory forms. Broad product and services portfolio enables the company to cater to varied requirements of the clients and there by increase the revenue per client.

High margins compared to peers
The company reported higher margins compared to its competitors in recent times. Paychex reported an operating margin of 38.9% and net profit margin of 24.5% in FY2013. Comparatively, its competitor, Automatic Data Processing (ADP) recorded an operating profit margin of 17.7% and net profit margin of 12.4% for FY2013. Higher margins enjoyed by Paychex indicates positive factors related to pricing power, product mix and strong cost management. These factors highlight the competitive advantages enjoyed by the company. Additionally, high profit margins provide stability to operations and provide higher flexibility during times of revenue declines.

Weaknesses

Overdependence on the US market

Paychex, Inc.
© MarketLine

Page 21

Paychex, Inc.
SWOT Analysis

The company’s operations are primarily concentrated in the US. The company's US operations have historically accounted for a majority of its total revenues. The company also generates revenue in Germany, which contributed to less than 1% of its total revenue. Comparatively, the company's competitor, ADP, has presence in the US, Canada, Europe, South America (primarily Brazil), Australia and Asia. The international regions collectively accounted for 19.4% of ADP's total revenues in FY2013. Moreover, Paychex has no presence in the emerging economies which are believed to be the driving factors in the world economic growth. The company's geographic concentration makes it vulnerable to country specific risks, impacts operations and limits its growth potential. The company is also a competitive advantages as larger peers like ADP will be able to capture clients operating in international locations as the clients continue to look for vendor consolidation.

Opportunities

Expansion through acquisitions and partnerships
The company is significantly expanding its presence through strategic acquisitions in the recent past. For instance, in June 2013, Paychex acquired HR Services, a human resource management solution provider, and myStaffingPro, a SaaS applicant tracking suite. myStaffingPro is a web-based system that offers social recruiting, applicant tracking, and onboarding in a solution. This acquisition is expected to strengthen the company’s portfolio of human resource service solutions, and will provide an applicant tracking and recruiting services solution for its clients. Further, in August 2013, Paychex and Semco Partners, a Sao Paulo-based portfolio management and investment company, entered into a joint venture agreement to expand the company’s services into Brazil. In October 2013, the company formed a partnership with Kashoo, a provider of cloud accounting software. Kashoo helps small business owners manage their business finances and collaborate with their accountants. With this partnership, Paychex expands the products and services it provides to small and mid-sized clients and the accounting community. Through this partnership, the company made a strategic move into cloud-based accounting. This could well prove to be a catalyst to boost the company’s sales and revenues. These strategic acquisitions are part of Paychex's growth strategy to expand its presence and further strengthen its portfolio of offerings. New product offerings

The company has launched new product offerings in the recent times to provide better solutions to its clients. For instance, in October 2013, the company launched Paychex Single Sign-On, a SaaS platform. All Paychex services are accessible on this single cloud-based platform. In the following month, Paychex introduced a new product line with the launch of Paychex Accounting Online, a SaaS accounting solution for small businesses that is accessible directly through the cloud. Moreover, in the same month, the company added the Mid Atlantic Trust Company’s (a non-depository state chartered trust company) ModelxChange web-based model portfolios for retirement services clients. ModelxChange provides an advisor with the ability to choose from a suite of pre-selected portfolios from money management firms and helps eliminate the process of coordinating all the moving parts required for a plan recordkeeper to manage an investment model. Subsequently, in January 2014, the company in partnership with Elavon, a global payments provider, introduced the Paychex Payment

Paychex, Inc.
© MarketLine

Page 22

Paychex, Inc.
SWOT Analysis

Processing Services, a suite of payment processing solutions, including credit and debit card processing, mobile and online payment services, and point-of-sale (POS) solutions, designed to meet the needs of small businesses.

New offerings enable the company to attract more customers and provide a base for enhancing its revenues in the coming years.
Positive outlook for HRO market
The human resource outsourcing (HRO) market has been growing since last few years and is expected to grow strongly over the coming years. The market is expected to be driven by increasing need for alignment between business operations and HR, cost reduction, changing policy framework, and access to key technologies. According to industry estimates, HRO contract activity was up 37% year-over year (YoY) in 2013. The payroll market is one of the largest HRO service lines that is expected to grow strongly. Moreover, approximately 80% of the payroll contract activity was from the medium sized businesses. Medium sized businesses are expected to continue to account for majority of payroll activity in 2014 as well. The US is expected to account for a major share of the global HRO market, while Asia is poised to register a robust growth in the coming years. Paychex being a leading provider of payroll, human resources and employee benefits outsourcing solutions for small to medium-sized enterprises will benefit from the robust outlook for the HRO market.

Threats

Highly competitive markets
The market for payroll processing and HR services is highly competitive and fragmented. Competition in the payroll processing and HR services industry is primarily based on service responsiveness, product quality and reputation, breadth of service and product offering, and price. The company’s primary competitor is Automatic Data Processing. Paychex competes with other national, regional, local, and online service providers. In addition to traditional payroll processing and HR service providers, the company competes with in-house payroll and HR systems and departments. Its HR services also competes with several providers of HR services, such as retirement services companies, insurance companies, and HR and benefits consulting firms. Paychex’s other competitors include Broadridge Financial Solutions, H&R Block, Intuit, Fiserv and The Brink’s Company. Intense competition may erode the company's market share and client base which will further impact its revenue growth and margins.

Rapid technological changes
As a provider of software solutions, the company is exposed to a high degree of technological changes. The software as a service (SaaS), desktop software and mobile technology industries are characterized by rapidly changing technology, evolving industry standards and frequent new product introductions. Changing technology places demands on the companies operating in the industry to

Paychex, Inc.
© MarketLine

Page 23

Paychex, Inc.
SWOT Analysis

stay up to date with technology changes and customer demands. In addition, technological innovation while driving the demand for new products also renders the existing technology obsolete, which burdens the company with obsolete products. Failure on the company's part to keep track of the latest technological advancements and timely up gradation of its portfolio will make it difficult for the company to attract new customers and retain existing customers, which may in turn affect the overall business.

Government regulations
The company is vulnerable to changes in government regulations and policies. Many of Paychex’s services, particularly payroll tax administration services and employee benefit plan administration services are designed according to government regulations that continually change. Changes in regulations could impact the extent and type of benefits employers are required, or may choose, to provide employees or the amount and type of taxes employers and employees are required to pay. Such changes could reduce or eliminate the need for some of the company’s services and could lead to a possible decrease its revenue. Additional requirements could also increase Paychex’s cost of doing business. Failure to educate and assist its clients regarding new or revised legislation that impacts them could have an adverse impact on the company’s reputation. In addition, any failure by the company to modify its services in a timely fashion in response to regulatory changes could impact its business and results of operations.

Moreover, healthcare reforms also have significant impact on the company’s business. For instance, in 2010 the Patient Protection and Affordable Care Act (PPACA) was enacted and modified by the Heath Care and Education Reconciliation Act of 2010. The Act entails sweeping health care reforms with staggered effective dates from 2010 through 2018, and many provisions of the Act require the issuance of additional guidance from the US Departments of Labor and Health & Human Services, the Internal Revenue Service (IRS), and the states. The complexity of federal and state regulations facing employers continued to increase over time, including the enactment of the Act. Complying with these reforms may result in increased costs, limit or delay the company’s ability to increase service fees to offset such increased costs, and could impact Paychex’s ability to attract and retain clients.

Paychex, Inc.
© MarketLine

Page 24

Paychex, Inc.
Top Competitors

TOP COMPETITORS

The following companies are the major competitors of Paychex, Inc.

Automatic Data Processing, Inc. (ADP)
Broadridge Financial Solutions, Inc.
DST System, Inc.
Fiserv, Inc.
Global Payments Inc.
H&R Block, Inc.
Intuit Inc.
Iron Mountain Incorporated
Moody’s Corporation
ROBERT HALF INTERNATIONAL INC.
TD Ameritrade Holding Corporation
The Brink's Company
The Dun & Bradstreet Corporation
The Western Union Company
Total Systems Services, Inc.

Paychex, Inc.
© MarketLine

Page 25

Paychex, Inc.
Company View

COMPANY VIEW
A statement by Martin Mucci, the President and Chief Executive Officer at Paychex, Inc. is given below. The statement has been taken from the company’s 2013 annual report. You have always known Paychex as a company that provides our clients with industry-leading customer service. Now you know us as a company that pairs our exceptional service with innovative technology solutions.That’s a powerful combination – and it’s the engine driving our solid performance and progress in fiscal 2013 and beyond.

Paychex is committed to helping transform how businesses do business – and giving them the freedom to succeed. Integrating our service with our technology means we are there for our clients and their employees, providing information and products when, where, and how they want them. Our smartphone app is a great example of how we put this strategy into action. We kicked off the fiscal year last June with the launch of our app, which we made specifically to give employers and employees the easiest, fastest, and broadest access to the information they need. In creating the app, we put ourselves in our clients’ shoes and worked our way out to the “one-click” access they said was important. And, that’s just the beginning.

The innovative products we develop are designed to keep pace with the needs of our target market, small- and medium-sized businesses, and set us apart from the competition. The investments we make in our business are focused on driving growth in revenue and profits while providing best-in-class service and technology solutions to our clients and their employees. Our aggressive charge to the future is happening against the backdrop of an economy making slow and steady, if not bumpy, progress. We’ll be ready to capitalize on a stronger economy as it gets back to full strength, but we’re not waiting on it. Our focus is on growth, and we’ve got more than 12,000 people across 100 Paychex locations who I’m proud to say are executing our plan to grow our business every day – for our clients, our colleagues, and our shareholders. Strategy for Growth

At the center of our growth strategy is sales. We added new territories during fiscal 2013, and segmented our markets for even more sales opportunities. We established a clear differentiation between the payroll markets we serve, a move that aligns with our technology roadmap that is taking us to one cloud-based platform.

We also expanded markets in the 401(k) division of our business, creating a dedicated, wholesale 401(k) sales team focused solely on building relationships with financial advisors. With more than 62,000 plans, Paychex is the recordkeeper for approximately one of every ten 401(k) plans in the country, and a leading industry survey ranks Paychex as the largest 401(k) recordkeeper in America by number of plans. We take this expertise not just to clients, but to the financial advisor community

Paychex, Inc.
© MarketLine

Page 26

Paychex, Inc.
Company View

as well. Our team is selling the service and technology combination that differentiates us from the competition.
During the last year, we also created a dedicated business development group to help drive sales in two important channels for Paychex – banks and franchises – and we were successful. We signed an exclusive partnership with Union Bank, N.A. and reaffirmed our relationship with RBS Citizens Financial Group, a major win in light of some tough competition. Our commitment to growing sales in our franchise channel paid big dividends when we earned the designation as preferred provider of payroll and HR services for the franchisees of two major international companies – Independent Purchasing Cooperative, a SUBWAY Franchisee-owned organization, and Tim Hortons Cafe and Bake Shop.

Health Care Reform
Our sales teams, across all divisions, are committed to educating, informing, and delivering to our customers the solutions they need to be successful. Right now, health care reform is at the top of the list of concerns for America’s businesses as they work to understand how it may impact them. Paychex is taking a leadership role for our clients when it comes to navigating the Affordable Care Act (ACA), a complex piece of legislation with more than 300 provisions. We’re uniquely positioned to help clients identify what they need to do and when, and we are preparing to launch comprehensive solutions that will help both employers and employees respond to the employer shared responsibility (ESR) and individual mandate provisions of the ACA.

The Paychex Employer Shared Responsibility Analysis and Monitoring Service will help employers determine if ESR, which now takes effect January 1, 2015, applies to them and what actions they need to take ahead of that date to avoid future tax penalties. This service will also help employers continually analyze their information and avoid situations that may lead to penalties. In addition to the requirement for large employers, starting in 2015 most U.S. citizens and legal residents will have to obtain health insurance, through their employer or individually, or pay a penalty. Offering group health insurance won’t be an option for every employer, but there are other options available through consumer-driven health care that will help employers and their employees manage the costs associated with the changes happening with health care reform. The Paychex Benefit Account is an offering that will help employers and their employees manage these costs. The single platform lets employers offer flexible spending accounts, health savings accounts, and health reimbursement arrangements with one debit card, giving employers a way to manage health-related expenses and customize a solution that’s right for their workforce. The Paychex Benefit Account will also include a defined contribution feature that gives employees an avenue for purchasing individual health insurance through Paychex’s private health insurance exchange. We created a new section of our website specifically for the latest information about health care reform, easily accessible by clients and the public. As more guidance is available from the government, Paychex will be here as the single source our clients can turn to for information on what they need to do and when. Again, with our expertise and technology, we are able to develop and deliver the solutions America’s businesses need to have peace of mind.

Paychex, Inc.
© MarketLine

Page 27

Paychex, Inc.
Company View

Technology
Technology is a critical component of the future of Paychex, and we continued to make significant progress in 2013 integrating our leading technology and mobility platform with our world-class customer service through the Paychex next-generation suite of products. Paychex Single Sign-On and our mobility platform really differentiate us from the competition by giving access to all Paychex products and by giving every user the same experience regardless of what device they’re on – a computer, tablet, or smartphone. A great example of this is our best-in-class, Web-based report center, built from the ground up and launched in October, 2012. Clients and CPAs can set up the Paychex Report Center in a way that works best for them, and get their reports presented in a simple, easy-to-use format.

We keep adding more capabilities to our mobile apps, including the latest additions – employer and employee access to health and benefits information, and employer access to FSA account information. There’s much more to come in fiscal 2014, including enhancements designed especially for our larger mid-market clients.

Acquisitions
Two of our fiscal 2013 acquisitions have SaaS-based business models. ExpenseWire is a Web-based expense management tool, and myStaffingPro is an applicant tracking solution. Both advance our offering for mid-market clients. Our SurePayroll product, another SaaS solution we acquired in 2011, performed well in 2013 with strong sales and revenue growth. We continue to look for the right opportunities to grow our business through acquisition, both in the U.S. and abroad. If the opportunity fits with our growth strategy, we’ll explore it. Fiscal 2013 Performance

With product expansion and technology innovation as our foundation for growth, it’s our sales and service execution that leads to consistently strong financial results. I’m really pleased with how Paychex employees performed over the past year, which in turn powered the company’s performance. Our core payroll, SurePayroll, retirement services, and HR Solutions sales teams generated strong new business revenue. On the operations side, our teams achieved the highest client satisfaction in our company’s 42-year history. That kind of exceptional dedication to being an essential partner to our customers also led to a best-ever year in client retention, more than 81% of our client base at the start of fiscal 2013.

I want to offer special thanks to all of our employees for the fantastic job they did after Hurricane Sandy struck the East Coast last fall. They made sure that there was minimal impact to our clients’ service by implementing the largest backup and recovery plan in our history, using the resources of virtually every branch across the country.

Paychex, Inc.
© MarketLine

Page 28

Paychex, Inc.
Company View

The same commitment to our values and mission was reflected in milestones we achieved and honors we received during the past year. Our Paychex Insurance Agency marked a milestone of generating over $100 million in annual revenue, and it was named the 28th largest insurance agency in the country by Business Insurance magazine. We were also recognized as one of the world’s most ethical companies by the Ethisphere Institute, one of Fortune’s most admired companies in America, and one of the top 125 training organizations in the world by Training magazine. Additionally, for the fourth consecutive year, Paychex was honored by the National Business Group on Health for its commitment to promoting a healthy workplace and encouraging employees to maintain healthy lifestyles.

Financial Results
These accomplishments are all factors in Paychex’s solid financial results for our fiscal year that ended May 31, 2013. A key indicator we keep a close eye on, checks per payroll, improved for 13 consecutive quarters.

Total service revenue for the year was $2.3 billion, an increase of 5% over the year before. Payroll service revenue was up 2% to $1.5 billion for the same period, with revenue per client being a factor in that growth. We ended the year with 570,000 payroll clients, an increase of about 1%. HRS revenue continues its strong performance with another year of double-digit growth. It climbed 10% to $746 million. Operating income rose 6% for the year to $905 million. Net income increased 4% to $569 million, and earnings per share increased 3% to $1.56 per share, reflecting an increase in the tax provision relating to the settlement of a state income tax matter of approximately $.04 per share. Additionally, we returned $477 million, or 84%, of net income to shareholders. We continue to be debt free and have a strong liquidity position, with cash and total investments of $875 million, compared to $790 million in fiscal 2012.

The Future
I’m very proud of our fiscal 2013 performance. We reached the highest new business sales revenue in over five years in a number of divisions, achieved record client retention and satisfaction scores, and accelerated our competitiveness with new products and technology, including our mobile applications. Looking ahead, we have also set the foundation for one of the most significant years in Paychex history from a standpoint of opportunities to assist our clients and grow our business. With our product response to health care reform this fall, as well as enhancements in our mid-market payroll, banking, and franchise referral channels, and continued client service and retention, fiscal 2014 could be our biggest year yet!

Whether a business is a 10-employee landscaper who needs payroll and 401(k), or a 500-emloyee hotel that needs HR administration and expense and talent management, Paychex has solutions that are both simple and sophisticated. We have the right combination of service and technology for America’s business.

Paychex, Inc.
© MarketLine

Page 29

Paychex, Inc.
Company View

I thank the Paychex shareholders, Board of Directors, clients, and employees for their support of our strategy for success. I look forward to more great things to come.

Paychex, Inc.
© MarketLine

Page 30

Paychex, Inc.
Locations and Subsidiaries

LOCATIONS AND SUBSIDIARIES
Head Office
Paychex, Inc.
911 Panorama Trail S.
Rochester
New York 14625 0397
USA
P:1 585 385 6666
http://www.paychex.com

Other Locations and Subsidiaries
Paychex Berlin
Torstrasse 49
Berlin 10119
DEU

Paychex, Inc. – New Jersey
1551 S. Washington Avenue
Suite 200
Piscataway
New Jersey 08854
USA

Paychex, Inc. – Massachusetts
100 Riverpark Drive
Suite 100
North Reading
Massachusetts 01864
USA

Paychex, Inc. – California
1100 Mohawk Street
Suite 100
Bakersfield
California 93309
USA

Paychex, Inc. - North Carolina
8701 Red Oak Blvd. Suite 300
Charlotte
North Carolina 28217
USA

Paychex, Inc. - Illinois
1000 East Warrenville Road
Suite 200
Naperville
Illinois 60563
USA

Paychex, Inc. - Connecticut
714 Brook Street
Suite 120
Rocky Hill
Connecticut 06067
USA

Paychex Inc. - Washington
20829 72nd Avenue South Suite 400
Kent
Washington 98032
USA

Paychex, Inc.
© MarketLine

Page 31

Paychex, Inc.
Locations and Subsidiaries

Paychex, Inc. - Pennsylvania
1550 Pond Rd Suite 302
Allentown
Pennsylvania 18104
USA

Paychex, Inc.
© MarketLine

Paychex, Inc. - Virginia
3060 Williams Drive
Suite 200
Fairfax
Virginia 22031
USA

Page 32

MARKETLINE | 119 FARRINGDON ROAD | LONDON, UNITED KINGDOM, EC1R 3DA T: +44 161 238 4040 | F: +44 870 134 4371 | E: REACHUS@MARKETLINE.COM | W: www.marketline.com

Cite This Document

Related Documents

Discover the Best Free Essays on StudyMode

Conquer writer's block once and for all.

High Quality Essays

Our library contains thousands of carefully selected free research papers and essays.

Popular Topics

No matter the topic you're researching, chances are we have it covered.