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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 

FORM 10-Q

(Mark One) 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2021

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______ to ______

Commission File Number: 001-36393

 

Paycom Software, Inc.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

80-0957485

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification Number)

 

 

 

7501 W. Memorial Road

Oklahoma City, Oklahoma

 

 

 

73142

 

(Address of principal executive offices)

 

(Zip Code)

(405) 722-6900

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock, $0.01 par value

 

PAYC

 

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.    Yes       No   

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes       No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer 

 

Accelerated filer

 

 

 

 

Non-accelerated filer   

 

Smaller reporting company

Emerging growth company    

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.            

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes       No  

As of October 26, 2021, there were 60,025,819 shares of common stock, par value of $0.01 per share, outstanding, including 2,029,204 shares of restricted stock.

 

 


 

Paycom Software, Inc.

 

 

 

PART I – FINANCIAL INFORMATION

 

 

 

Item 1.

 

 

Financial Statements

 

3

 

 

 

Unaudited Consolidated Balance Sheets

 

3

 

 

 

Unaudited Consolidated Statements of Income

 

4

 

 

Unaudited Consolidated Statements of Stockholders’ Equity

 

5

 

 

 

Unaudited Consolidated Statements of Cash Flows

 

6

 

 

 

Notes to the Unaudited Consolidated Financial Statements

 

7

 

Item 2.

 

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

20

 

Item 3.

 

 

Quantitative and Qualitative Disclosures About Market Risk

 

31

 

Item 4.

 

 

Controls and Procedures

 

31

 

 

 

PART II – OTHER INFORMATION

 

 

 

Item 1.

 

 

Legal Proceedings

 

32

 

Item 1A.

 

 

Risk Factors

 

32

 

Item 2.

 

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

32

 

Item 6.

 

 

Exhibits

 

33

 

Signatures

 

34

 

 

 

2


 

PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements

Paycom Software, Inc.

Unaudited Consolidated Balance Sheets

(in thousands, except per share amounts)

 

 

 

 

September 30, 2021

 

 

December 31, 2020

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

230,926

 

 

$

151,710

 

Accounts receivable

 

 

13,004

 

 

 

9,130

 

Prepaid expenses

 

 

26,643

 

 

 

17,854

 

Inventory

 

 

866

 

 

 

1,151

 

Income tax receivable

 

 

10,211

 

 

 

10,447

 

Deferred contract costs

 

 

71,559

 

 

 

60,819

 

Current assets before funds held for clients

 

 

353,209

 

 

 

251,111

 

Funds held for clients

 

 

2,959,973

 

 

 

1,613,494

 

Total current assets

 

 

3,313,182

 

 

 

1,864,605

 

Property and equipment, net

 

 

329,296

 

 

 

285,218

 

Intangible assets, net

 

 

59,057

 

 

 

319

 

Goodwill

 

 

51,889

 

 

 

51,889

 

Long-term deferred contract costs

 

 

430,761

 

 

 

371,357

 

Other assets

 

 

33,853

 

 

 

34,524

 

Total assets

 

$

4,218,038

 

 

$

2,607,912

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

9,441

 

 

$

6,787

 

Accrued commissions and bonuses

 

 

12,431

 

 

 

13,703

 

Accrued payroll and vacation

 

 

36,138

 

 

 

24,529

 

Deferred revenue

 

 

16,175

 

 

 

13,567

 

Current portion of long-term debt

 

 

1,775

 

 

 

1,775

 

Accrued expenses and other current liabilities

 

 

50,340

 

 

 

44,175

 

Current liabilities before client funds obligation

 

 

126,300

 

 

 

104,536

 

Client funds obligation

 

 

2,959,973

 

 

 

1,613,494

 

Total current liabilities

 

 

3,086,273

 

 

 

1,718,030

 

Deferred income tax liabilities, net

 

 

125,228

 

 

 

112,598

 

Long-term deferred revenue

 

 

81,702

 

 

 

73,259

 

Net long-term debt, less current portion

 

 

27,815

 

 

 

29,119

 

Other long-term liabilities

 

 

71,679

 

 

 

19,263

 

Total long-term liabilities

 

 

306,424

 

 

 

234,239

 

Total liabilities

 

 

3,392,697

 

 

 

1,952,269

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Common stock, $0.01 par value (100,000 shares authorized, 62,275 and 61,861 shares issued at September 30, 2021 and December 31, 2020, respectively; 57,997 and 57,739 shares outstanding at September 30, 2021 and December 31, 2020, respectively)

 

 

622

 

 

 

618

 

Additional paid-in capital

 

 

441,479

 

 

 

357,908

 

Retained earnings

 

 

866,892

 

 

 

719,619

 

Treasury stock, at cost (4,278 and 4,122 shares at September 30, 2021 and December 31, 2020, respectively)

 

 

(483,652

)

 

 

(422,502

)

Total stockholders’ equity

 

 

825,341

 

 

 

655,643

 

Total liabilities and stockholders’ equity

 

$

4,218,038

 

 

$

2,607,912

 

 

See accompanying notes to the unaudited consolidated financial statements.

 

3


 

 

Paycom Software, Inc.

Unaudited Consolidated Statements of Income

(in thousands, except per share amounts)

 

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

 

2021

 

 

 

2020

 

 

 

2021

 

 

 

2020

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Recurring

 

$

251,306

 

 

$

192,664

 

 

$

756,665

 

 

$

609,109

 

Implementation and other

 

 

4,888

 

 

 

3,868

 

 

 

13,873

 

 

 

11,378

 

Total revenues

 

 

256,194

 

 

 

196,532

 

 

 

770,538

 

 

 

620,487

 

Cost of revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

34,766

 

 

 

24,278

 

 

 

92,612

 

 

 

71,651

 

Depreciation and amortization

 

 

7,914

 

 

 

6,634

 

 

 

22,751

 

 

 

18,865

 

Total cost of revenues

 

 

42,680

 

 

 

30,912

 

 

 

115,363

 

 

 

90,516

 

Administrative expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales and marketing

 

 

69,745

 

 

 

62,146

 

 

 

200,485

 

 

 

173,228

 

Research and development

 

 

31,077

 

 

 

21,772

 

 

 

84,012

 

 

 

65,171

 

General and administrative

 

 

59,980

 

 

 

40,516

 

 

 

160,234

 

 

 

121,487

 

Depreciation and amortization

 

 

9,407

 

 

 

7,150

 

 

 

25,503

 

 

 

20,209

 

Total administrative expenses

 

 

170,209

 

 

 

131,584

 

 

 

470,234

 

 

 

380,095

 

Total operating expenses

 

 

212,889

 

 

 

162,496

 

 

 

585,597

 

 

 

470,611

 

Operating income

 

 

43,305

 

 

 

34,036

 

 

 

184,941

 

 

 

149,876

 

Interest expense

 

 

 

 

 

 

 

 

 

 

 

(19

)

Other income (expense), net

 

 

244

 

 

 

246

 

 

 

1,019

 

 

 

(522

)

Income before income taxes

 

 

43,549

 

 

 

34,282

 

 

 

185,960

 

 

 

149,335

 

Provision for income taxes

 

 

13,170

 

 

 

6,800

 

 

 

38,687

 

 

 

30,249

 

Net income

 

$

30,379

 

 

$

27,482

 

 

$

147,273

 

 

$

119,086

 

Earnings per share, basic

 

$

0.52

 

 

$

0.48

 

 

$

2.55

 

 

$

2.07

 

Earnings per share, diluted

 

$

0.52

 

 

$

0.47

 

 

$

2.53

 

 

$

2.04

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

57,935

 

 

 

57,603

 

 

 

57,843

 

 

 

57,609

 

Diluted

 

 

58,190

 

 

 

58,171

 

 

 

58,192

 

 

 

58,312

 

 

 

See accompanying notes to the unaudited consolidated financial statements.


4


 

Paycom Software, Inc.

Unaudited Consolidated Statements of Stockholders’ Equity

(in thousands)

 

 

 

Common Stock

 

 

Additional

 

 

Retained

 

 

Treasury Stock

 

 

Total

 

 

Shares

 

 

Amount

 

 

Paid-in Capital

 

 

Earnings

 

 

Shares

 

 

Amount

 

 

Stockholders’ Equity

 

Balances at December 31, 2019

 

61,350

 

 

$

613

 

 

$

257,501

 

 

$

576,166

 

 

 

3,689

 

 

$

(307,652

)

 

$

526,628

 

Vesting of restricted stock

 

2

 

 

 

1

 

 

 

(1

)

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

18,313

 

 

 

 

 

 

 

 

 

 

 

 

18,313

 

Repurchases of common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

41

 

 

 

(8,168

)

 

 

(8,168

)

Net income

 

 

 

 

 

 

 

 

 

 

63,015

 

 

 

 

 

 

 

 

 

63,015

 

Balances at March 31, 2020

 

61,352

 

 

$

614

 

 

$

275,813

 

 

$

639,181

 

 

 

3,730

 

 

$

(315,820

)

 

$

599,788

 

Vesting of restricted stock

 

261

 

 

 

2

 

 

 

(2

)

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

24,597

 

 

 

 

 

 

 

 

 

 

 

 

24,597

 

Repurchases of common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

295

 

 

 

(67,121

)

 

 

(67,121

)

Net income

 

 

 

 

 

 

 

 

 

 

28,589

 

 

 

 

 

 

 

 

 

28,589

 

Balances at June 30, 2020

 

61,613

 

 

$

616

 

 

$

300,408

 

 

$

667,770

 

 

 

4,025

 

 

$

(382,941

)

 

$

585,853

 

Vesting of restricted stock

 

26

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

21,913

 

 

 

 

 

 

 

 

 

 

 

 

21,913

 

Repurchases of common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

9

 

 

 

(2,849

)

 

 

(2,849

)

Net income

 

 

 

 

 

 

 

 

 

 

27,482

 

 

 

 

 

 

 

 

 

27,482

 

Balances at September 30, 2020

 

61,639

 

 

$

616

 

 

$

322,321

 

 

$

695,252

 

 

 

4,034

 

 

$

(385,790

)

 

$

632,399

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Additional

 

 

Retained

 

 

Treasury Stock

 

 

Total

 

 

Shares

 

 

Amount

 

 

Paid-in Capital

 

 

Earnings

 

 

Shares

 

 

Amount

 

 

Stockholders’ Equity

 

Balances at December 31, 2020

 

61,861

 

 

$

618

 

 

$

357,908

 

 

$

719,619

 

 

 

4,122

 

 

$

(422,502

)

 

$

655,643

 

Vesting of restricted stock

 

3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

25,594

 

 

 

 

 

 

 

 

 

 

 

 

25,594

 

Repurchases of common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

1

 

 

 

(377

)

 

 

(377

)

Net income

 

 

 

 

 

 

 

 

 

 

64,616

 

 

 

 

 

 

 

 

 

64,616

 

Balances at March 31, 2021

 

61,864

 

 

$

618

 

 

$

383,502

 

 

$

784,235

 

 

 

4,123

 

 

$

(422,879

)

 

$

745,476

 

Vesting of restricted stock

 

271

 

 

 

3

 

 

 

(3

)

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

26,480

 

 

 

 

 

 

 

 

 

 

 

 

26,480

 

Repurchases of common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

94

 

 

 

(31,978

)

 

 

(31,978

)

Net income

 

 

 

 

 

 

 

 

 

 

52,278

 

 

 

 

 

 

 

 

 

52,278

 

Balances at June 30, 2021

 

62,135

 

 

$

621

 

 

$

409,979

 

 

$

836,513

 

 

 

4,217

 

 

$

(454,857

)

 

$

792,256

 

Vesting of restricted stock

 

140

 

 

 

1

 

 

 

(1

)

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

31,501

 

 

 

 

 

 

 

 

 

 

 

 

31,501

 

Repurchases of common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

61

 

 

 

(28,795

)

 

 

(28,795

)

Net income

 

 

 

 

 

 

 

 

 

 

30,379

 

 

 

 

 

 

 

 

 

30,379

 

Balances at September 30, 2021

 

62,275

 

 

$

622

 

 

$

441,479

 

 

$

866,892

 

 

 

4,278

 

 

$

(483,652

)

 

$

825,341

 

 

 

See accompanying notes to the unaudited consolidated financial statements.

 


5


 

 

Paycom Software, Inc.

Unaudited Consolidated Statements of Cash Flows

(in thousands)

 

 

 

Nine Months Ended September 30,

 

 

 

2021

 

 

2020

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net income

 

$

147,273

 

 

$