10-Q 1 payc-20240930.htm 10-Q 10-Q
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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, 2024

or

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

(State or other jurisdiction

of incorporation or organization)

80-0957485

(I.R.S. Employer Identification No.)

 

 

 

 

7501 W. Memorial Road

Oklahoma City, Oklahoma

(Address of principal executive offices)

 

73142

 (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 22, 2024, there were 57,662,043 shares of common stock, par value of $0.01 per share, outstanding, including 1,775,788 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 Comprehensive Income

 

4

 

 

Unaudited Consolidated Statements of Stockholders’ Equity

 

5

 

 

 

Unaudited Consolidated Statements of Cash Flows

 

6

 

 

 

Notes to the Unaudited Consolidated Financial Statements

 

8

 

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 5.

 

Other Information

 

32

 

Item 6.

 

 

Exhibits

 

34

 

Signatures

 

35

 

2


 

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

 

Paycom Software, Inc.

Unaudited Consolidated Balance Sheets

(in thousands, except per share amounts)

 

September 30, 2024

 

 

December 31, 2023

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

325,757

 

 

$

294,025

 

Accounts receivable

 

 

20,576

 

 

 

16,442

 

Prepaid expenses

 

 

45,979

 

 

 

37,613

 

Inventory

 

 

1,331

 

 

 

1,383

 

Income tax receivable

 

 

10,341

 

 

 

18,391

 

Deferred contract costs

 

 

134,270

 

 

 

118,206

 

Current assets before funds held for clients

 

 

538,254

 

 

 

486,060

 

Funds held for clients

 

 

1,439,651

 

 

 

2,327,366

 

Total current assets

 

 

1,977,905

 

 

 

2,813,426

 

Property and equipment, net

 

 

553,597

 

 

 

498,197

 

Intangible assets, net

 

 

47,183

 

 

 

50,112

 

Goodwill

 

 

51,889

 

 

 

51,889

 

Long-term deferred contract costs

 

 

753,290

 

 

 

680,272

 

Operating lease right-of-use assets

 

 

77,958

 

 

 

73,762

 

Other assets

 

 

30,708

 

 

 

29,881

 

Total assets

 

$

3,492,530

 

 

$

4,197,539

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

35,044

 

 

$

13,875

 

Accrued commissions and bonuses

 

 

23,377

 

 

 

30,492

 

Accrued payroll and vacation

 

 

49,495

 

 

 

56,086

 

Deferred revenue

 

 

28,885

 

 

 

22,812

 

Operating lease liabilities

 

 

20,124

 

 

 

19,236

 

Accrued expenses and other current liabilities

 

 

63,110

 

 

 

64,066

 

Current liabilities before client funds obligation

 

 

220,035

 

 

 

206,567

 

Client funds obligation

 

 

1,439,648

 

 

 

2,328,076

 

Total current liabilities

 

 

1,659,683

 

 

 

2,534,643

 

Deferred income tax liabilities, net

 

 

140,228

 

 

 

143,750

 

Long-term deferred revenue

 

 

113,371

 

 

 

107,657

 

Long-term operating lease liabilities

 

 

60,660

 

 

 

56,713

 

Other long-term liabilities

 

 

53,936

 

 

 

51,740

 

Total long-term liabilities

 

 

368,195

 

 

 

359,860

 

Total liabilities

 

 

2,027,878

 

 

 

2,894,503

 

Commitments and contingencies (Note 12)

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Common stock, $0.01 par value (100,000 shares authorized, 62,924 and 62,675 shares issued at September 30, 2024 and December 31, 2023, respectively; 55,885 and 56,528 shares outstanding at September 30, 2024 and December 31, 2023, respectively)

 

 

629

 

 

627

 

Additional paid-in capital

 

 

697,892

 

 

 

724,493

 

Retained earnings

 

 

1,795,476

 

 

 

1,469,981

 

Accumulated other comprehensive earnings (loss)

 

 

(180

)

 

 

(1,039

)

Treasury stock, at cost (7,039 and 6,147 shares at September 30, 2024 and December 31, 2023, respectively)

 

 

(1,029,165

)

 

 

(891,026

)

Total stockholders’ equity

 

 

1,464,652

 

 

 

1,303,036

 

Total liabilities and stockholders’ equity

 

$

3,492,530

 

 

$

4,197,539

 

See accompanying notes to the unaudited consolidated financial statements.

3


 

Paycom Software, Inc.

Unaudited Consolidated Statements of Comprehensive Income

(in thousands, except per share amounts)

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

Recurring

 

$

445,002

 

 

$

398,763

 

 

$

1,367,298

 

 

$

1,237,706

 

Implementation and other

 

 

6,932

 

 

 

7,540

 

 

 

22,029

 

 

 

21,373

 

Total revenues

 

 

451,934

 

 

 

406,303

 

 

 

1,389,327

 

 

 

1,259,079

 

Cost of revenues

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

70,818

 

 

 

55,600

 

 

 

201,939

 

 

 

163,302

 

Depreciation and amortization

 

 

17,535

 

 

 

13,341

 

 

 

48,929

 

 

 

38,299

 

Total cost of revenues

 

 

88,353

 

 

 

68,941

 

 

 

250,868

 

 

 

201,601

 

Administrative expenses

 

 

 

 

 

 

 

 

 

 

 

 

Sales and marketing

 

 

104,477

 

 

 

101,162

 

 

 

326,865

 

 

 

311,171

 

Research and development

 

 

63,047

 

 

 

51,864

 

 

 

175,927

 

 

 

143,651

 

General and administrative

 

 

70,642

 

 

 

71,827

 

 

 

92,610

 

 

 

213,397

 

Depreciation and amortization

 

 

20,541

 

 

 

15,608

 

 

 

57,229

 

 

 

44,660

 

Total administrative expenses

 

 

258,707

 

 

 

240,461

 

 

 

652,631

 

 

 

712,879

 

Total operating expenses

 

 

347,060

 

 

 

309,402

 

 

 

903,499

 

 

 

914,480

 

Operating income

 

 

104,874

 

 

 

96,901

 

 

 

485,828

 

 

 

344,599

 

Interest expense

 

 

(789

)

 

 

(222

)

 

 

(2,353

)

 

 

(1,661

)

Other income (expense), net

 

 

4,229

 

 

 

5,362

 

 

 

14,025

 

 

 

17,549

 

Income before income taxes

 

 

108,314

 

 

 

102,041

 

 

 

497,500

 

 

 

360,487

 

Provision for income taxes

 

 

35,036

 

 

 

26,822

 

 

 

109,065

 

 

 

101,456

 

Net income

 

$

73,278

 

 

$

75,219

 

 

$

388,435

 

 

$

259,031

 

Earnings per share, basic

 

$

1.31

 

 

$

1.30

 

 

$

6.90

 

 

$

4.48

 

Earnings per share, diluted

 

$

1.31

 

 

$

1.30

 

 

$

6.89

 

 

$

4.46

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

55,929

 

 

 

57,825

 

 

 

56,307

 

 

 

57,871

 

Diluted

 

 

55,964

 

 

 

57,966

 

 

 

56,365

 

 

 

58,056

 

Comprehensive earnings:

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

73,278

 

 

$

75,219

 

 

$

388,435

 

 

$

259,031

 

Unrealized net gains on available-for-sale securities

 

 

101

 

 

 

1,232

 

 

 

1,256

 

 

 

2,047

 

Tax effect

 

 

24

 

 

 

(420

)

 

 

(397

)

 

 

(525

)

Other comprehensive income, net of tax

 

 

125

 

 

 

812

 

 

 

859

 

 

 

1,522

 

Comprehensive earnings:

 

$

73,403

 

 

$

76,031

 

 

$

389,294

 

 

$

260,553

 

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

 

 

Accumulated Other

 

 

Treasury Stock

 

 

Total

 

 

Shares

 

 

Amount

 

 

Paid-in Capital

 

 

Earnings

 

 

Comprehensive Loss

 

 

Shares

 

 

Amount

 

 

Stockholders’ Equity

 

Balances at December 31, 2022

 

 

62,518

 

 

$

625

 

 

$

576,622

 

 

$

1,196,968

 

 

$

(3,703

)

 

 

4,651

 

 

$

(587,905

)

 

$

1,182,607

 

Vesting of restricted stock

 

 

7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

32,344

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

32,344

 

Repurchases of common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2

 

 

 

(626

)

 

 

(626

)

Net income

 

 

 

 

 

 

 

 

 

 

 

119,296

 

 

 

 

 

 

 

 

 

 

 

 

119,296

 

Other comprehensive earnings (loss), net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

850

 

 

 

 

 

 

 

 

 

850

 

Balances at March 31, 2023

 

 

62,525

 

 

$

625

 

 

$

608,966

 

 

$

1,316,264

 

 

$

(2,853

)

 

 

4,653

 

 

$

(588,531

)

 

$

1,334,471

 

Vesting of restricted stock

 

 

115

 

 

 

1

 

 

 

(1

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

41,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

41,000

 

Repurchases of common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

38

 

 

 

(10,441

)

 

 

(10,441

)

Dividends declared ($0.375 per share)

 

 

 

 

 

 

 

 

 

 

 

(22,721

)

 

 

 

 

 

 

 

 

 

 

 

(22,721

)

Net income

 

 

 

 

 

 

 

 

 

 

 

64,516

 

 

 

 

 

 

 

 

 

 

 

 

64,516

 

Other comprehensive earnings (loss), net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(140

)

 

 

 

 

 

 

 

 

(140

)

Balances at June 30, 2023

 

 

62,640

 

 

$

626

 

 

$

649,965

 

 

$

1,358,059

 

 

$

(2,993

)

 

 

4,691

 

 

$

(598,972

)

 

$

1,406,685

 

Vesting of restricted stock

 

 

15

 

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1

 

Stock-based compensation

 

 

 

 

 

 

 

 

37,758

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

37,758

 

Repurchases of common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

264

 

 

 

(76,547

)

 

 

(76,547

)

Dividends declared ($0.375 per share)

 

 

 

 

 

 

 

 

 

 

 

(22,619

)

 

 

 

 

 

 

 

 

 

 

 

(22,619

)

Net income

 

 

 

 

 

 

 

 

 

 

 

75,219

 

 

 

 

 

 

 

 

 

 

 

 

75,219

 

Other comprehensive earnings (loss), net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

812

 

 

 

 

 

 

 

 

 

812

 

Balances at September 30, 2023

 

 

62,655

 

 

$

627

 

 

$

687,723

 

 

$

1,410,659

 

 

$

(2,181

)

 

 

4,955

 

 

$

(675,519

)

 

$

1,421,309

 

 

 

 

Common Stock

 

 

Additional

 

 

Retained

 

 

Accumulated Other

 

 

Treasury Stock

 

 

Total

 

 

Shares

 

 

Amount

 

 

Paid-in Capital

 

 

Earnings

 

 

Comprehensive Loss

 

 

Shares

 

 

Amount

 

 

Stockholders’ Equity

 

Balances at December 31, 2023

 

 

62,675

 

 

$

627

 

 

$

724,493

 

 

$

1,469,981

 

 

$

(1,039

)

 

 

6,147

 

 

$

(891,026

)

 

$

1,303,036

 

Vesting of restricted stock

 

 

44

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

(89,675

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(89,675

)

Dividends declared ($0.375 per share)

 

 

 

 

 

 

 

 

 

 

 

(19,977

)

 

 

 

 

 

 

 

 

 

 

 

(19,977

)

Repurchases of common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

15

 

 

 

(3,052

)

 

 

(3,052

)

Net income

 

 

 

 

 

 

 

 

 

 

 

247,187

 

 

 

 

 

 

 

 

 

 

 

 

247,187

 

Other comprehensive earnings (loss), net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

544

 

 

 

 

 

 

 

 

 

544

 

Balances at March 31, 2024

 

 

62,719

 

 

$

627

 

 

$

634,818

 

 

$

1,697,191

 

 

$

(495

)

 

 

6,162

 

 

$

(894,078

)

 

$

1,438,063

 

Vesting of restricted stock

 

 

168

 

 

 

2

 

 

 

(2

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

32,381

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

32,381

 

Dividends declared ($0.375 per share)

 

 

 

 

 

 

 

 

 

 

 

(21,553

)

 

 

 

 

 

 

 

 

 

 

 

(21,553

)

Repurchases of common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

574

 

 

 

(90,520

)

 

 

(90,520

)

Net income

 

 

 

 

 

 

 

 

 

 

 

67,970

 

 

 

 

 

 

 

 

 

 

 

 

67,970

 

Other comprehensive earnings (loss), net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

190

 

 

 

 

 

 

 

 

 

190

 

Balances at June 30, 2024

 

 

62,887

 

 

$

629

 

 

$

667,197

 

 

$

1,743,608

 

 

$

(305

)

 

 

6,736

 

 

$

(984,598

)

 

$

1,426,531

 

Vesting of restricted stock

 

 

37

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

30,695

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

30,695

 

Dividends declared ($0.375 per share)

 

 

 

 

 

 

 

 

 

 

 

(21,410

)

 

 

 

 

 

 

 

 

 

 

 

(21,410

)

Repurchases of common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

303

 

 

 

(44,567

)

 

 

(44,567

)

Net income

 

 

 

 

 

 

 

 

 

 

 

73,278

 

 

 

 

 

 

 

 

 

 

 

 

73,278

 

Other comprehensive earnings (loss), net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

125

 

 

 

 

 

 

 

 

 

125

 

Balances at September 31, 2024

 

 

62,924

 

 

$

629

 

 

$

697,892

 

 

$

1,795,476

 

 

$

(180

)

 

 

7,039

 

 

$

(1,029,165

)

 

$

1,464,652

 

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,

 

 

2024

 

 

2023

 

Cash flows from operating activities

 

 

 

 

 

 

Net income

 

$

388,435

 

 

$

259,031

 

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

 

 

 

 

 

 

Depreciation and amortization

 

 

106,158

 

 

 

82,959

 

Accretion of discount on available-for-sale securities

 

 

(112

)

 

 

(387

)

Non-cash marketing expense

 

 

1,202

 

 

 

1,263

 

Gain on disposition of property and equipment

 

 

(12

)

 

 

(33

)

Amortization of debt issuance costs

 

 

831

 

 

 

946

 

Stock-based compensation expense

 

 

(45,514

)

 

 

96,383

 

Loss on extinguishment of debt

 

 

 

 

 

1,222

 

Deferred income taxes, net

 

 

(3,827

)

 

 

3,889

 

Other

 

 

(97

)

 

 

18

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

(4,134

)

 

 

7,295

 

Prepaid expenses

 

 

(7,970

)

 

 

(8,845

)

Inventory

 

 

869

 

 

 

375

 

Other assets

 

 

(1,657

)

 

 

(8,262

)

Deferred contract costs

 

 

(84,413

)

 

 

(87,604

)

Accounts payable

 

 

13,088

 

 

 

(8,131

)

Income taxes, net

 

 

8,050

 

 

 

(5,187

)

Accrued commissions and bonuses

 

 

(7,115

)

 

 

(8,016

)

Accrued payroll and vacation

 

 

(6,591

)

 

 

(3,863

)

Deferred revenue

 

 

11,787

 

 

 

10,902

 

Net change in operating right-of-use assets and operating lease liabilities

 

 

639

 

 

 

882

 

Accrued expenses and other current liabilities

 

 

3,896

 

 

 

15,732

 

Net cash provided by operating activities

 

 

373,513

 

 

 

350,569

 

Cash flows from investing activities

 

 

 

 

 

 

Purchases of investments from funds held for clients

 

 

(24,926

)

 

 

(25,000

)

Proceeds from investments from funds held for clients

 

 

200,000

 

 

 

25,000

 

Purchases of property and equipment

 

 

(141,549

)

 

 

(135,709

)

Proceeds from sale of property and equipment

 

 

13

 

 

 

67

 

Net cash provided by (used in) investing activities

 

 

33,538

 

 

 

(135,642

)

Cash flows from financing activities

 

 

 

 

 

 

Repurchases of common stock

 

 

(122,801

)

 

 

(74,994

)

Withholding taxes paid related to net share settlements

 

 

(14,415

)

 

 

(12,620

)

Dividends paid

 

 

(63,687

)

 

 

(43,367

)

Net change in client funds obligation

 

 

(888,428

)

 

 

(306,063

)

Payment of debt issuance costs

 

 

 

 

 

(649

)

Net cash used in financing activities

 

 

(1,089,331

)

 

 

(437,693

)

Decrease in cash, cash equivalents, restricted cash and restricted cash equivalents

 

 

(682,280

)

 

 

(222,766

)

Cash, cash equivalents, restricted cash and restricted cash equivalents

 

 

 

 

 

 

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

 

 

2,422,760