In Q4 2024, despite a rise in **Net Income** (from **$1,557.3 million** to **$1,690.4 million**), the **Operating Cash Flow** was significantly reduced by several adverse working capital adjustments. These included a notable **negative change in accounts payable and other current liabilities** (a decrease of **$127.0 million**), further negative impact from **deferred costs** (a reduction of **$244.9 million**), and an increased **net realized loss on the disposal of assets** (an increase of **$32.8 million**), all of which overwhelmed the positive effects and resulted in a lower overall operating cash flow.  **[0000950170-24-077622_payx-ex99_1.htm:8]** 

Why was Operating Cash Flow so low in Q4 2024?

The decline in operating cash flow for Q1 2025 was primarily driven by **timing differences in cash collected from clients and payroll tax settlements** due to net changes in PEO assets and liabilities, a **net decrease in accrued corporate compensation** resulting from the settlement of fiscal 2024 year-end bonuses, and a **net increase in accrued income taxes** related to the timing of the first-quarter tax installment.  **[0000950170-24-110834_payx-20240831.htm:32]** **[0000950170-24-110834_payx-20240831.htm:33]** 

What factors led to the drop in Operating Cash Flow in Q1 2025?

The improvement in operating cash flow in FY 2024 was driven by several factors. **Net income increased by $133.1 million** compared to FY 2023, and there was a **positive change of $248.7 million in accounts receivable and PEO unbilled receivables** that boosted cash flows. These gains were partially offset by a **negative change of $213.3 million in accounts payable and other current liabilities**, while a smaller increase in deferred costs and other adjustments in operating assets and liabilities also contributed to the overall improvement in operating cash flow.  **[0000950170-24-077622_payx-ex99_1.htm:8]** **[0000950170-24-082958_payx-20240531.htm:72]** **[0000950170-24-082958_payx-20240531.htm:52]** 

What drove the improvement in Operating Cash Flow in FY 2024?

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In Q1 2024, the jump in **Cash and Cash Equivalents**—from **$1,222.0 million** to **$1,645.9 million**—was mainly driven by several factors. **Operating activities** saw a substantial increase in net cash provided, with operating cash flows rising to **$655.8 million**. There were also **financing inflows** from adjustments in client fund obligations and changes in dividend payments, as well as a **timing anomaly** where a significant collection day at the quarter's end temporarily boosted cash balances. Additionally, a reallocation of investments from variable rate demand notes into higher-yielding cash and money market accounts further supported the boost in cash levels.  **[0000950170-23-050438_payx-20230831.htm:29]** **[0000950170-23-050045_payx-ex99_1.htm:0]** **[PAYX_3329869_20]** 

Why did Cash and cash equivalents jump in Q1 2024?

The increase in **Total assets** in Q1 2024 was driven by several factors. **Funds held for clients** rose from **$4,118.8 million** to **$5,470.7 million** (an increase of **$1,351.9 million**), **cash and cash equivalents** increased from **$1,222.0 million** to **$1,645.9 million** (an increase of **$423.9 million** driven by strong operating cash flows of **$655.8 million**), **accounts receivable** grew from **$873.3 million** to **$1,015.8 million** (an increase of **$142.5 million**), and **goodwill** increased from **$1,834.0 million** to **$1,881.4 million** (an increase of **$47.4 million** due to an acquisition that complements Paychex’s Paychex Advance business).  **[0000950170-23-050045_payx-ex99_1.htm:7]** **[0000950170-23-050438_payx-20230831.htm:29]** **[PAYX_3329869_4]** 

What drove the increase in Total assets in Q1 2024?

The rise in Total liabilities in Q1 2024 was driven by **three main factors**. First, there was a **significant increase in client fund obligations**, which rose by approximately **$1,383.5 million** due to the timing of collections and the remittance of funds for payroll tax administration and employee payment services. Second, **other current liabilities increased** by about **$162.7 million**, likely related to accrued expenses and other short-term obligations. Finally, there were increases in both **accounts payable and the emergence of accrued income taxes**, with accrued income taxes rising from **$0 million to $61.0 million** and accounts payable increasing modestly. These combined factors contributed to an overall increase in liabilities during the period.  **[0000950170-23-050045_payx-ex99_1.htm:7]** **[0000950170-23-050438_payx-20230831.htm:29]** 

What factors led to the rise in Total liabilities in Q1 2024?

Paychex's corporate investments dropped sharply in Q1 2024 due to several key factors. **Acquisition impact** led to lower average corporate balances, which reduced the interest income normally generated from these investments. Additionally, a **timing effect** resulted in a high cash balance at the quarter's end, which is expected to normalize as the year moves forward. Finally, the company adjusted its **investment strategy** by reinvesting in cash and money market accounts—offering more favorable interest rates—instead of continuing with variable rate demand notes, contributing further to the decline in investments.  **[PAYX_3329869_7]** **[0000950170-23-050438_payx-20230831.htm:29]** 

Why did Corporate investments drop so sharply in Q1 2024?

60601eb1275d2623c47e80638ef76d1c21706f0a66f34e7348593adf8a7137f2

The available information explains that in Q4 2023, Paychex’s operating income of **$453 million** was driven by factors such as **revenue growth outpacing expense growth**, **moderate expense increases**, and **improved operating margins** compared to the prior year’s Q4 performance.  **[0000950170-23-030544_payx-ex99_1.htm:6]** **[PAYX_3254382_2]**  However, these documents are focused on a year‐over‐year comparison rather than on a sequential drop from Q3 2023’s **$611.90 million**. In other words, while the Q4 performance reflects the company’s efforts to control expenses relative to revenue, there is no definitive explanation provided in the sources regarding why the operating income was lower in Q4 2023 versus Q3 2023.

Why did Operating Income drop significantly in Q4 2023?

Based on the documents, the reported **Basic EPS** in Q3 2023 was **$1.30** and in Q4 2023 it was **$0.97**.  **[0000950170-23-010925_payx-20230228.htm:1]** **[0000950170-23-032988_payx-20230531.htm:60]**  However, there is no information provided that explains why **Basic EPS** declined in Q4 2023.

What caused Basic EPS to decline in Q4 2023?

The surge in **Interest on Funds Held for Clients** in Q3 2023 was primarily driven by **higher average interest rates earned** compared to the same period in the previous year.  **[0000950170-23-010925_payx-20230228.htm:25]** **[0000950170-23-010925_payx-20230228.htm:24]** **[0000950170-23-010449_payx-ex99_1.htm:6]** 

What drove the surge in Interest on Funds Held for Clients in Q3 2023?

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20b3151aa951a29133ceb6300810382d99332648e3dea55c88bf00bb0b450224

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2e1445870b63bb582ade5fe01270f56c63f147c8efd560d672d5e6a4b1ace526

PAYCHEX (PAYX)

Financials