Paycom Software, Inc. Reports Second Quarter 2024 Results

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Jul 31, 2024

Paycom Software, Inc. (“Paycom,” “we” and “our”) (NYSE: PAYC), a leading provider of comprehensive, cloud-based human capital management software, today announced its financial results for the quarter ended June 30, 2024.

“During the second quarter, our outside sales team delivered solid performance with robust new logo adds, as we continue to sell the most automated solution on the market,” said Paycom founder, CEO and chairman, Chad Richison. “We continue to extend our product lead as we eclipse the industry with even greater automation.”

Financial Highlights for the Second Quarter of 2024

Total Revenues of $437.5 million represented a 9.1% increase compared to total revenues of $401.1 million in the same period last year. Recurring revenues of $430.4 million increased 9.1% from the comparable prior year period and constituted 98.4% of total revenues.

GAAP Net Income was $68.0 million, or $1.20 per diluted share, compared to GAAP net income of $64.5 million, or $1.11 per diluted share, in the same period last year.

Non-GAAP Net Income1was $91.8 million, or $1.62 per diluted share, compared to $94.3 million, or $1.62 per diluted share, in the same period last year.

Adjusted EBITDA1 was $159.7 million, compared to $156.6 million in the same period last year.

Cash and Cash Equivalents were $346.5 million as of June 30, 2024, compared to $294.0 million as of December 31, 2023. During the quarter ended June 30, 2024, Paycom paid $21.2 million in cash dividends and repurchased 573,743 shares of common stock for $90.1 million, in the aggregate.

Total Debt was $0 as of June 30, 2024 and December 31, 2023.

1Adjusted EBITDA, non-GAAP net income and non-GAAP net income per diluted share are non-GAAP financial measures. Please see the discussion below under the heading “Use of Non-GAAP Financial Information” and the reconciliations at the end of this release for additional information concerning these and other non-GAAP financial measures.

Financial Outlook

Paycom provides the following expected financial guidance for the quarter ending September 30, 2024 and the year ending December 31, 2024.

Quarter Ending September 30, 2024:

Total Revenues in the range of $444 million to $449 million.

Adjusted EBITDA in the range of $155 million to $159 million.

Year Ending December 31, 2024:

Total Revenues in the range of $1.860 billion to $1.875 billion.

Adjusted EBITDA in the range of $727 million to $737 million.

We have not reconciled the forward-looking adjusted EBITDA ranges presented above and discussed on the teleconference call to net income, nor the forward-looking adjusted EBITDA margins and forward-looking non-GAAP effective income tax rate discussed on the teleconference call to comparable GAAP measures, because applicable information for future periods, on which these reconciliations would be based, is not readily available due to uncertainty regarding, and the potential variability of, depreciation and amortization, interest expense, taxes, non-cash stock-based compensation expense and other items. Accordingly, reconciliations of the forward-looking adjusted EBITDA ranges to net income, the forward-looking adjusted EBITDA margins to net income margin, and the forward-looking non-GAAP effective income tax rate to the GAAP effective income tax rate are not available at this time without unreasonable effort.

Use of Non-GAAP Financial Information

To supplement our financial information presented in accordance with generally accepted accounting principles in the United States (“GAAP”), we present certain non-GAAP financial measures in this press release and on the related teleconference call, including adjusted EBITDA, non-GAAP net income, adjusted gross profit, adjusted gross margin, adjusted sales and marketing expenses, adjusted total administrative expenses, adjusted research and development expenses, adjusted total research and development costs, adjusted EBITDA margin and non-GAAP effective income tax rate. Management uses these non-GAAP financial measures as supplemental measures to review and assess the performance of our core business operations and for planning purposes. We define (i) adjusted EBITDA as net income plus interest expense, taxes, depreciation and amortization, non-cash stock-based compensation expense, certain transaction expenses that are not core to our operations (if any) and any loss on the extinguishment of debt, (ii) non-GAAP net income as net income plus non-cash stock-based compensation expense, certain transaction expenses that are not core to our operations (if any) and any loss on the extinguishment of debt, all of which are adjusted for the effect of income taxes, (iii) adjusted gross profit as gross profit plus applicable non-cash stock-based compensation expense, (iv) adjusted gross margin as gross profit plus applicable non-cash stock-based compensation expense, divided by total revenues, (v) each adjusted expense item as the GAAP expense amount less applicable non-cash stock-based compensation expense, (vi) adjusted total research and development costs as total research and development costs (including the capitalized portion) less applicable non-cash stock-based compensation (including the capitalized portion), (vii) adjusted EBITDA margin as adjusted EBITDA (calculated as described in clause (i)) divided by total revenues, and (viii) non-GAAP effective income tax rate as the provision for income taxes plus the income tax effect on non-GAAP adjustments divided by non-GAAP net income (calculated as described in clause (ii)) plus the provision for income taxes and the income tax effect on non-GAAP adjustments. The non-GAAP financial measures presented in this press release and discussed on the related teleconference call provide investors with greater transparency to the information used by management in its financial and operational decision-making. We believe these metrics are useful to investors because they facilitate comparisons of our core business operations across periods on a consistent basis, as well as comparisons with the results of peer companies, many of which use similar non-GAAP financial measures to supplement results under GAAP. In addition, adjusted EBITDA is a measure that provides useful information to management about the amount of cash available for reinvestment in our business, paying dividends, repurchasing common stock and other purposes. Management believes that the non-GAAP measures presented in this press release and discussed on the related teleconference call, when viewed in combination with our results prepared in accordance with GAAP, provide a more complete understanding of the factors and trends affecting our business and performance.

The non-GAAP financial measures presented in this press release and discussed on the related teleconference call are not measures of financial performance under GAAP and should not be considered a substitute for net income, gross profit, gross margin, research and development expenses, sales and marketing expenses, administrative expenses, total research and development costs and GAAP effective income tax rate. Non-GAAP financial measures have limitations as analytical tools, and when assessing our operating performance, you should not consider these non-GAAP financial measures in isolation, or as a substitute for the consolidated statements of income data prepared in accordance with GAAP. The non-GAAP financial measures that we present may not be comparable to similarly titled measures of other companies, and other companies may not calculate such measures in the same manner as we do.

Conference Call Details

In conjunction with this announcement, Paycom will host a conference call today, July 31, 2024, at 5:00 p.m. Eastern time to discuss its financial results. To access this call, dial (833) 470-1428 (domestic) or (404) 975-4839 (international) and provide 399008 as the access code. A live webcast as well as the replay of the conference call will be available on the Investor Relations page of Paycom’s website at investors.paycom.com.

About Paycom

For 25 years, Paycom Software, Inc. (NYSE: PAYC) has simplified businesses and the lives of their employees through easy-to-use HR and payroll technology to empower transparency through direct access to their data. And thanks to its industry-first solution, Beti®, employees now do their own payroll and are guided to find and fix costly errors before payroll submission. From onboarding and benefits enrollment to talent management and more, Paycom’s software streamlines processes, drives efficiencies and gives employees power over their own HR information, all in a single app. Recognized nationally for its technology and workplace culture, Paycom can now serve businesses of all sizes in the U.S. and internationally.

Forward-Looking Statements

Certain statements in this press release are, and certain statements on the related teleconference call may be, forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are any statements that refer to Paycom’s estimated or anticipated results, other non-historical facts or future events and include, but are not limited to, statements regarding our business strategy; anticipated future operating results and operating expenses, cash flows, capital resources, dividends and liquidity; competition; trends, opportunities and risks affecting our business, industry and financial results; future expansion or growth plans and potential for future growth, including internationally; our ability to attract new clients to purchase our solution; our ability to retain clients and induce them to purchase additional applications; our ability to accurately forecast future revenues and appropriately plan our expenses; market acceptance of our solution and applications; our expectations regarding future revenues generated by certain applications; the return on investment for users of our solution; our ability to attract and retain qualified employees and key personnel; future regulatory, judicial and legislative changes; how certain factors affecting our performance correlate to improvement or deterioration in the labor market; our plan to open additional sales offices and our ability to effectively execute such plan; the sufficiency of our existing cash and cash equivalents to meet our working capital and capital expenditure needs over the next 12 months; our plans regarding our capital expenditures and investment activity as our business grows, including with respect to research and development and the expansion of our facilities; our plans to pay cash dividends; our plans to repurchase shares of our common stock through a stock repurchase plan; and our expected income tax rate for future periods. In addition, forward-looking statements also consist of statements involving trend analyses and statements including such words as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “potential,” “should,” “will,” “would,” and similar expressions or the negative of such terms or other comparable terminology. These forward-looking statements are based only on information currently available to us, speak only as of the date hereof and are subject to business and economic risks. As such, our actual results could differ materially from those set forth in the forward-looking statements as a result of the factors discussed in our filings with the Securities and Exchange Commission, including but not limited to those discussed in our most recent Annual Report on Form 10-K. We do not undertake any obligation to update or revise the forward-looking statements to reflect events that occur or circumstances that exist after the date on which such statements were made, except to the extent required by law.

Paycom Software, Inc.

Unaudited Consolidated Balance Sheets

(in thousands, except per share amounts)

June 30, 2024

December 31, 2023

Assets

Current assets:

Cash and cash equivalents

$

346,456

$

294,025

Accounts receivable

20,034

16,442

Prepaid expenses

46,529

37,613

Inventory

1,415

1,383

Income tax receivable

18,391

Deferred contract costs

128,728

118,206

Current assets before funds held for clients

543,162

486,060

Funds held for clients

2,303,159

2,327,366

Total current assets

2,846,321

2,813,426

Property and equipment, net

531,884

498,197

Intangible assets, net

48,159

50,112

Goodwill

51,889

51,889

Long-term deferred contract costs

727,956

680,272

Other assets

106,535

103,643

Total assets

$

4,312,744

$

4,197,539

Liabilities and Stockholders’ Equity

Current liabilities:

Accounts payable

$

14,997

$

13,875

Income tax payable

10,281

Accrued commissions and bonuses

22,227

30,492

Accrued payroll and vacation

60,533

56,086

Deferred revenue

31,432

22,812

Accrued expenses and other current liabilities

84,215

83,302

Current liabilities before client funds obligation

223,685

206,567

Client funds obligation

2,303,198

2,328,076

Total current liabilities

2,526,883

2,534,643

Deferred income tax liabilities, net

136,213

143,750

Long-term deferred revenue

110,928

107,657

Other long-term liabilities

112,189

108,453

Total long-term liabilities

359,330

359,860

Total liabilities

2,886,213

2,894,503

Commitments and contingencies

Stockholders’ equity:

Common stock, $0.01 par value (100,000 shares authorized, 62,887 and 62,675 shares issued at June 30, 2024 and December 31, 2023, respectively; 56,151 and 56,528 shares outstanding at June 30, 2024 and December 31, 2023, respectively)

629

627

Additional paid-in capital

667,197

724,493

Retained earnings

1,743,608

1,469,981

Accumulated other comprehensive earnings (loss)

(305

)

(1,039

)

Treasury stock, at cost (6,736 and 6,147 shares at June 30, 2024 and December 31, 2023, respectively)

(984,598

)

(891,026

)

Total stockholders’ equity

1,426,531

1,303,036

Total liabilities and stockholders’ equity

$

4,312,744

$

4,197,539

Paycom Software, Inc.

Unaudited Consolidated Statements of Comprehensive Income

(in thousands, except per share amounts)

Three Months Ended June 30,

Six Months Ended June 30,

2024

2023

2024

2023

Revenues

Recurring

$

430,400

$

394,522

$

922,296

$

838,943

Implementation and other

7,112

6,617

15,097

13,833

Total revenues

437,512

401,139

937,393

852,776

Cost of revenues

Operating expenses

67,451

54,617

131,121

107,702

Depreciation and amortization

16,433

12,811

31,394

24,958

Total cost of revenues

83,884

67,428

162,515

132,660

Administrative expenses

Sales and marketing

106,864

106,435

222,388

210,009

Research and development

62,371

49,118

112,880

91,787

General and administrative

70,072

75,965

21,968

141,570

Depreciation and amortization

19,181

14,927

36,688

29,052

Total administrative expenses

258,488

246,445

393,924

472,418

Total operating expenses

342,372

313,873

556,439

605,078

Operating income

95,140

87,266

380,954

247,698

Interest expense

(782

)

(602

)

(1,564

)

(1,439

)

Other income (expense), net

4,787

6,183

9,796

12,187

Income before income taxes

99,145

92,847

389,186

258,446

Provision for income taxes

31,175

28,331

74,029

74,634

Net income

$

67,970

$

64,516

$

315,157

$

183,812

Earnings per share, basic

$

1.20

$

1.11

$

5.58

$

3.17

Earnings per share, diluted

$

1.20

$

1.11

$

5.57

$

3.17

Weighted average shares outstanding:

Basic

56,451

57,920

56,499

57,895

Diluted

56,771

58,033

56,548

58,050

Comprehensive earnings:

Net income

$

67,970

$

64,516

$

315,157

$

183,812

Unrealized net gains on available-for-sale securities

318

(235

)

1,155

815

Tax effect

(128

)

95

(421

)

(105

)

Other comprehensive income, net of tax

190

(140

)

734

710

Comprehensive earnings:

$

68,160

$

64,376

$

315,891

$

184,522

Paycom Software, Inc.

Unaudited Consolidated Statements of Cash Flows

(in thousands)

Six Months Ended June 30,

2024

2023

Cash flows from operating activities

Net income

$

315,157

$

183,812

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

68,082

54,010

Accretion of discount on available-for-sale securities

(108

)

(253

)

Non-cash marketing expense

798

839

Loss (Gain) on disposition of property and equipment

12

(21

)

Amortization of debt issuance costs

552

620

Stock-based compensation expense

(69,670

)

63,185

Deferred income taxes, net

(7,798

)

1,706

Other

(161

)

111

Changes in operating assets and liabilities:

Accounts receivable

(3,592

)

6,650

Prepaid expenses

(8,345

)

(10,597

)

Inventory

431

336

Other assets

(3,445

)

(9,057

)

Deferred contract costs

(55,198

)

(62,489

)

Accounts payable

91

(10,277

)

Income taxes, net

28,672

3,645

Accrued commissions and bonuses

(8,265

)

(6,560

)

Accrued payroll and vacation

4,197

4,954

Deferred revenue

11,891

6,817

Accrued expenses and other current liabilities

7,431

24,560

Net cash provided by operating activities

280,732

251,991

Cash flows from investing activities

Purchases of investments from funds held for clients

(25,000

)

Proceeds from investments from funds held for clients

165,000

25,000

Purchases of property and equipment

(93,335

)

(83,422

)

Proceeds from sale of property and equipment

13

44

Net cash provided by (used in) investing activities

71,678

(83,378

)

Cash flows from financing activities

Repurchases of common stock

(80,761

)

Withholding taxes paid related to net share settlements

(12,410

)

(11,067

)

Dividends paid

(42,400

)

(21,731

)

Net change in client funds obligation

(24,878

)

(201,552

)

Net cash (used in) financing activities

(160,449

)

(234,350

)

Increase (decrease) in cash, cash equivalents, restricted cash and restricted cash equivalents

191,961

(65,737

)

Cash, cash equivalents, restricted cash and restricted cash equivalents

Cash, cash equivalents, restricted cash and restricted cash equivalents, beginning of period

2,422,760

2,409,095

Cash, cash equivalents, restricted cash and restricted cash equivalents, end of period

$

2,614,721

$

2,343,358

Paycom Software, Inc.

Unaudited Consolidated Statements of Cash Flows

(in thousands)

Six Months Ended June 30,

2024

2023

Reconciliation of cash, cash equivalents, restricted cash and restricted cash equivalents

Cash and cash equivalents

$

346,456

$

536,545

Restricted cash included in funds held for clients

2,268,265

1,806,813

Total cash, cash equivalents, restricted cash and restricted cash equivalents, end of period

$

2,614,721

$

2,343,358

Supplemental disclosures of cash flow information:

Non-cash investing and financing activities:

Purchases of property and equipment, accrued but not paid

$

8,507

$

11,968

Stock-based compensation for capitalized software

$

8,797

$

7,752

Right of use assets obtained in exchange for operating lease liabilities

$

11,933

$

16,341

Paycom Software, Inc.

Unaudited Reconciliations of GAAP to Non-GAAP Financial Measures

(in thousands, except per share amounts)

Three Months Ended June 30,

Six Months Ended June 30,

2024

2023

2024

2023

Net income to adjusted EBITDA:

Net income

$

67,970

$

64,516

$

315,157

$

183,812

Interest expense

782

602

1,564

1,439

Provision for income taxes

31,175

28,331

74,029

74,634

Depreciation and amortization

35,614

27,738

68,082

54,010

EBITDA

135,541

121,187

458,832

313,895

Non-cash stock-based compensation expense

24,120

35,366

(69,670

)

63,185

Adjusted EBITDA

$

159,661

$

156,553

$

389,162

$

377,080

Net income margin

15.5

%

16.1

%

33.6

%

21.6

%

Adjusted EBITDA margin

36.5

%

39.0

%

41.5

%

44.2

%

Three Months Ended June 30,

Six Months Ended June 30,

2024

2023

2024

2023

Net income to non-GAAP net income:

Net income

$

67,970

$

64,516

$

315,157

$

183,812

Non-cash stock-based compensation expense

24,120

35,366

(69,670

)

63,185

Income tax effect on non-GAAP adjustments

(255

)

(5,620

)

(7,004

)

(10,084

)

Non-GAAP net income

$

91,835

$

94,262

$

238,483

$

236,913

Weighted average shares outstanding:

Basic

56,451

57,920

56,499

57,895

Diluted

56,771

58,033

56,548

58,050

Earnings per share, basic

$

1.20

$

1.11

$

5.58

$

3.17

Earnings per share, diluted

$

1.20

$

1.11

$

5.57

$

3.17

Non-GAAP net income per share, basic

$

1.63

$

1.63

$

4.22

$

4.09

Non-GAAP net income per share, diluted

$

1.62

$

1.62

$

4.22

$

4.08

Three Months Ended June 30,

Six Months Ended June 30,

2024

2023

2024

2023

Earnings per share to non-GAAP net income per share, basic:

Earnings per share, basic

$

1.20

$

1.11

$

5.58

$

3.17

Non-cash stock-based compensation expense

0.43

0.61

(1.23

)

1.09

Income tax effect on non-GAAP adjustments

(0.09

)

(0.13

)

(0.17

)

Non-GAAP net income per share, basic

$

1.63

$

1.63

$

4.22

$

4.09

Three Months Ended June 30,

Six Months Ended June 30,

2024

2023

2024

2023

Earnings per share to non-GAAP net income per share, diluted:

Earnings per share, diluted

$

1.20

$

1.11

$

5.57

$

3.17

Non-cash stock-based compensation expense

0.42

0.61

(1.23

)

1.09

Income tax effect on non-GAAP adjustments

(0.10

)

(0.12

)

(0.18

)

Non-GAAP net income per share, diluted

$

1.62

$

1.62

$

4.22

$

4.08

Three Months Ended June 30,

Six Months Ended June 30,

2024

2023

2024

2023

Adjusted gross profit:

Total revenues

$

437,512

$

401,139

$

937,393

$

852,776

Less: Total cost of revenues

(83,884

)

(67,428

)

(162,515

)

(132,660

)

Total gross profit

353,628

333,711

774,878

720,116

Plus: Non-cash stock-based compensation expense

4,163

3,353

7,154

5,738

Total adjusted gross profit

$

357,791

$

337,064

$

782,032

$

725,854

Gross margin

80.8

%

83.2

%

82.7

%

84.4

%

Adjusted gross margin

81.8

%

84.0

%

83.4

%

85.1

%

Three Months Ended June 30,

Six Months Ended June 30,

2024

2023

2024

2023

Adjusted sales and marketing expenses:

Sales and marketing expenses

$

106,864

$

106,435

$

222,388

$

210,009

Less: Non-cash stock-based compensation expense

(4,802

)

(6,040

)

(10,296

)

(11,516

)

Adjusted sales and marketing expenses

$

102,062

$

100,395

$

212,092

$

198,493

Total revenues

$

437,512

$

401,139

$

937,393

$

852,776

Sales and marketing expenses as a % of revenues

24.4

%

26.5

%

23.7

%

24.6

%

Adjusted sales and marketing expenses as a % of revenues

23.3

%

25.0

%

22.6

%

23.3

%

Three Months Ended June 30,

Six Months Ended June 30,

2024

2023

2024

2023

Adjusted total administrative expenses:

Total administrative expenses

$

258,488

$

246,445

$

393,924

$

472,418

Less: Non-cash stock-based compensation expense

(19,957

)

(32,013

)

76,824

(57,447

)

Adjusted total administrative expenses

$

238,531

$

214,432

$

470,748

$

414,971

Total revenues

$

437,512

$

401,139

$

937,393

$

852,776

Total administrative expenses as a % of revenues

59.1

%

61.4

%

42.0

%

55.4

%

Adjusted total administrative expenses as a % of revenues

54.5

%

53.5

%

50.2

%

48.7

%

Three Months Ended June 30,

Six Months Ended June 30,

2024

2023

2024

2023

Adjusted research and development expenses:

Research and development expenses

$

62,371

$

49,118

$

112,880

$

91,787

Less: Non-cash stock-based compensation expense

(7,775

)

(6,639

)

(13,145

)

(11,897

)

Adjusted research and development expenses

$

54,596

$

42,479

$

99,735

$

79,890

Total revenues

$

437,512

$

401,139

$

937,393

$

852,776

Research and development expenses as a % of revenues

14.3

%

12.2

%

12.0

%

10.8

%

Adjusted research and development expenses as a % of revenues

12.5

%

10.6

%

10.6

%

9.4

%

Three Months Ended June 30,

Six Months Ended June 30,

2024

2023

2024

2023

Total research and development costs:

Capitalized research and development costs

$

31,186

$

22,878

$

61,032

$

44,231

Research and development expenses

62,371

49,118

112,880

91,787

Total research and development costs

$

93,557

$

71,996

$

173,912

$

136,018

Total revenues

$

437,512

$

401,139

$

937,393

$

852,776

Total research and development costs as a % of revenues

21.4

%

17.9

%

18.6

%

16.0

%

Adjusted total research and development costs:

Total research and development costs

$

93,557

$

71,996

$

173,912

$

136,018

Less: Capitalized non-cash stock-based compensation

(5,208

)

(4,155

)

(8,797

)

(7,752

)

Less: Non-cash stock-based compensation expense

(7,775

)

(6,639

)

(13,145

)

(11,897

)

Adjusted total research and development costs

$

80,574

$

61,202

$

151,970

$

116,369

Total revenues

$

437,512

$

401,139

$

937,393

$

852,776

Adjusted total research and development costs as a % of revenues

18.4

%

15.3

%

16.2

%

13.6

%

Paycom Software, Inc.

Unaudited Components of Non-Cash Stock-Based Compensation Expense

(in thousands)

Three Months Ended June 30,

Six Months Ended June 30,

2024

2023

2024

2023

Non-cash stock-based compensation expense:

Operating expenses

$

4,163

$

3,353

$

7,154

$

5,738

Sales and marketing

4,802

6,040

10,296

11,516

Research and development

7,775

6,639

13,145

11,897

General and administrative

7,380

19,334

(100,265

)

34,034

Total non-cash stock-based compensation expense

$

24,120

$

35,366

$

(69,670

)

$

63,185

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