Analyst Note| Emma Williams |
Wide-moat Paychex continued to benefit from a recovery in economic conditions in the second quarter of fiscal 2022, driving strong demand for its payroll and human capital management solutions. Second-quarter adjusted operating income increased 24% on a COVID-19 affected prior period, driven by improved operating leverage as more employees return to work, mix shift to higher margin solutions and cost efficiencies from digital sales and service. Client retention remains near record highs as small businesses continue to prove resilient, and the appeal of Paychex's solutions amid an increasingly complex operating environment drove record new business sales. Management solutions reported the strongest result with revenue increasing 14% year over year driven by a larger client base with more employees per client, and higher revenue per client due to like for like price increases and greater uptake of add on modules and services including retirement plans and HR outsourcing solutions. Interest on client funds remained weak due to lower yields, partly offset by an increase in client funds.