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Paycom Software Reports Third Quarter 2014 Earnings

11/04/2014

Third Quarter Revenue Growth Accelerated to 41.7% Year-over-Year

Record Annualized New Recurring Revenue (ANRR) of $14.9 Million Grew 52.0% Year-over-Year

OKLAHOMA CITY--(BUSINESS WIRE)-- Paycom Software, Inc. (“Paycom”) (NYSE: PAYC), a leading provider of a comprehensive cloud-based human capital management software solution, today announced its financial results for the quarter ended September 30, 2014.

“We continued to experience robust demand for our advanced human capital management and payroll software solution in the third quarter,” said Chad Richison, President and Chief Executive Officer of Paycom. “The power, flexibility and value of a single-database system are resonating with our current and prospective clients. Human resource professionals are increasingly looking to leverage technology to become key strategic players within the organization, and the Paycom solution is uniquely suited to help them achieve this.”

Financial Highlights for the Third Quarter of 2014

Total Revenues of $36.6 million increased 41.7% compared to $25.8 million in the same period last year, primarily due to the addition of clients in mature sales offices. Recurring revenues of $35.9 million also increased 42.4% from the comparable prior year period, and comprised 98% of total revenues.

GAAP Net Income was $2.7 million, or $0.05 per diluted share, compared to a loss of ($0.4) million, or ($0.01) per diluted share in the same period last year.

Adjusted EBITDA1 was $6.6 million, compared to $3.8 million in the same period last year.

Non-GAAP Net Income (Loss)1 was $2.7 million, or $0.05 per diluted share, compared to $(0.0) million, or $0.00 per diluted share, in the same period last year.

Annualized New Recurring Revenue (“ANRR”) was $14.9 million, up from $9.8 million for the same period last year, representing a 52.0% growth from the comparable prior year period.

Cash and Cash Equivalents were $18.5 million as of September 30, 2014.

Total Debt was $27.2 million as of September 30, 2014. This debt consisted of debt on the corporate headquarters.

1 Adjusted EBITDA and non-GAAP net income 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.

Financial Outlook

Paycom provides the following expected financial guidance for the quarter ending December 31, 2014, and year ending December 31, 2014:

Fourth Quarter 2014

Total Revenues in the range of $40 million to $41 million.

Adjusted EBITDA in the range of $5.5 million to $6.5 million.

Fiscal Year 2014

Total Revenues in the range of $147 million to $148 million.

Adjusted EBITDA in the range of $25 million to $26 million.

We have not reconciled the Adjusted EBITDA range for the quarter ending December 31, 2014 or the year ending December 31, 2014 to net income (loss) because applicable information for future periods, on which this reconciliation is based, is not readily available due to uncertainty regarding, and the potential variability of, depreciation and amortization, interest expense, taxes, stock-based compensation expense and other items. Accordingly, a reconciliation of these Adjusted EBITDA ranges to net income (loss) 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 consider and have included certain non-GAAP financial measures in this press release, including EBITDA, Adjusted EBITDA and non-GAAP net income. We use earnings before interest, taxes, depreciation and amortization (“EBITDA”), Adjusted EBITDA and non-GAAP net income, as supplemental measures to review and assess our performance and planning purposes. We define: (i) EBITDA as net income, plus interest expense, taxes and depreciation and amortization, (ii) Adjusted EBITDA as net income, plus interest expense, taxes, depreciation and amortization, stock-based compensation expense, net loss on early extinguishment of debt and certain transaction expenses that are not core to our operations and (iii) non-GAAP net income as pro forma net income plus tax adjusted stock-based compensation expense, tax adjusted net loss on early extinguishment of debt and certain tax adjusted transaction expenses that are not core to our operations. EBITDA, Adjusted EBITDA and non-GAAP net income are metrics that we believe are useful to investors in evaluating our performance and facilitating comparison with other peer companies, many of which use similar non-GAAP financial measures to supplement results under GAAP.

EBITDA, Adjusted EBITDA and non-GAAP net income are not measures of financial performance under GAAP, and should not be considered a substitute for net income (loss) or pro forma net income (loss), as applicable, which we consider to be the most directly comparable GAAP measures. EBITDA, Adjusted EBITDA and non-GAAP net income have limitations as analytical tools, and when assessing our operating performance, you should not consider EBITDA, Adjusted EBITDA and non-GAAP net income in isolation, or as a substitute for “Net income (loss),” “Pro forma net income (loss)” or other Condensed Consolidated Statements of Income data prepared in accordance with GAAP. EBITDA, Adjusted EBITDA and non-GAAP net income may not be comparable to similar 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, November 4, 2014 at 5:00 p.m. Eastern Time to discuss the company's financial results. To access this call, dial (888) 317-6003 (domestic) or (412)-317-6061 (international) with conference ID 6642499. A live webcast, as well as the replay of the conference call will be available on the Investor Relations page of the company's website at http://investors.paycom.com. A replay of this conference call can also be accessed by dialing (877)-344-7529 (domestic) or (412)-317-0088 (international) until November 19, 2014. The replay passcode is 10054725

About Paycom

As a leader in payroll and HR technology, Oklahoma City-based Paycom redefines the human capital management industry by allowing companies to effectively navigate a rapidly changing business environment. Its cloud-based software solution is based on a core system of record maintained in a single database for all human capital management functions, providing the functionality that businesses need to manage the complete employment lifecycle, from recruitment to retirement. Paycom serves businesses of all sizes and in every industry. As one of the leading human capital management providers, Paycom serves clients in all 50 states and has sales offices in 30 major cities across the nation.

Forward-Looking Statements

Certain statements in this press release are, and certain statements on the teleconference call may be, forward looking statements within the meaning provided under the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are made only as of the date hereof. These statements involve known and unknown risks and uncertainties that may cause Paycom’s actual results to differ materially from those stated or implied by such forward-looking statements, as a result of various risks and uncertainties including: changes in the demand for our solution, pricing changes and the impact of competition; changes in technology; our ability to attract, hire and retain skilled employees; our ability to attract and retain clients and increase the number of applications utilized by our clients; our ability to develop and market new applications, improve our existing applications and increase the value of our solution; our ability to maintain or increase our revenues and revenue growth rate; the sufficiency of our cash and cash equivalents and cash generated from operations to meet our working capital and capital expenditure requirements; changes in laws regulating payroll taxes and employee benefits; the possibility of a security breach that disrupts operations or exposes client confidential data; and potentially unfavorable outcomes related to pending legal matters.

Other factors that may cause such differences include, but are not limited to, those discussed in our periodic filings with the Securities and Exchange Commission, including those discussed in the prospectus filed with the Securities and Exchange Commission on April 15, 2014, and in particular the section entitled “Risk Factors” of the prospectus. Paycom undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by applicable securities laws.

   
Paycom Software, Inc.
Condensed Consolidated Balance Sheets
(in thousands, except share amounts)
(unaudited)
 
September 30, December 31,
2014 2013
Assets
Current assets:
Cash and cash equivalents $ 18,473 $ 13,362
Restricted cash 370 369
Accounts receivable 1,468 1,705
Prepaid expenses 1,581 2,133
Inventory 384 578
Income tax receivable - 150
Deferred tax assets   2,422   3,672  
Current assets before funds held for clients 24,698 21,969
Funds held for clients   393,633   455,779  
Total current assets 418,331 477,748

 

Property, plant and equipment, net of accumulated depreciation of $15.5 million and $11.5 million, respectively

46,642 38,671
Deposits and other assets 595 461
Goodwill 51,889 51,889

 

Intangible assets, net of accumulated amortization of $11.7 million and $10.5 million, respectively

  5,499   6,709  
Total assets $ 522,956 $ 575,478  
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 1,976 $ 5,020
Income tax payable 148 -
Accrued commissions and bonuses 2,568 3,598
Accrued payroll and vacation 2,665 3,087
Deferred revenue 2,186 1,582
Current portion of long-term debt 845 9,545
Accrued expenses and other current liabilities   3,871   4,372  
Current liabilities before client funds obligation 14,259 27,204
Client funds obligation   393,633   455,779  
Total current liabilities   407,892   482,983  
Deferred tax liabilities 3,059 2,895
Long-term deferred revenue 15,048 10,990
Long-term debt, less current portion 26,341 11,545
Long-term debt to related parties - 60,875
Derivative liability   -   1,107  
Total long-term liabilities   44,448   87,412  
Commitments and contingencies
Stockholders' equity:
Common stock, $0.01 par value (100,000,000 shares authorized, 51,056,462 and 45,708,573 shares issued and outstanding at September 30, 2014 and December 31, 2013, respectively) 510 457
Additional paid in capital 66,949 33,978
Retained earnings (accumulated deficit)   3,157   (29,349 )
Total parent's stockholders' equity   70,616   5,086  
Noncontrolling interest   -   (3 )
Total stockholders' equity   70,616   5,083  
Total liabilities and stockholders' equity $ 522,956 $ 575,478  

 

 
Paycom Software, Inc.
Condensed Consolidated Statements of Income

(in thousands, except share amounts)

(unaudited)
                   
 
 
Three Months Ended September 30,   Nine Months Ended September 30,
  2014     2013     2014     2013  
 
Revenues
Recurring $ 35,910 $ 25,210 $ 105,030 $ 75,808
Implementation and other   688     620     1,859     1,513  
Total revenues   36,598     25,830     106,889     77,321  
Cost of revenues
Operating expenses 5,798 4,846 17,847 13,633
Depreciation   638     494     1,876     1,320  
Total cost of revenues   6,436     5,340     19,723     14,953  
Administrative expenses
Sales and marketing 14,856 10,339 44,237 28,913
Research and development 1,059 538 2,878 1,317
General and administrative 8,410 6,815 25,816 18,851
Depreciation and amortization   1,159     959     3,322     2,716  
Total administrative expenses   25,484     18,651     76,253     51,797  
Total operating expenses   31,920     23,991     95,976     66,750  
 
Operating income 4,678 1,839 10,913 10,571
Interest expense (338 ) (2,329 ) (3,079 ) (6,929 )
Net loss on early repayment of debt - - (4,044 ) -
Other income (expense), net   39     (133 )   1,395     140  
Income (loss) before income taxes 4,379 (623 ) 5,185 3,782
Provision (benefit) for income taxes   1,689     (199 )   2,028     1,211  
Net income (loss) 2,690 (424 ) 3,157 2,571
Net income (loss) attributable to noncontrolling interest   -     (3 )   -     19  
Net income (loss) attributable to the Company $ 2,690   $ (421 ) $ 3,157   $ 2,552  
 
Pro forma additional income tax expense (benefit)   -     (93 )   -     563  
Pro forma net income (loss) $ 2,690   $ (328 ) $ 3,157   $ 1,989  
 
Net income (loss) per share, basic $ 0.05 $ (0.01 ) $ 0.06 $ 0.06
Net income (loss) per share, diluted $ 0.05 $ (0.01 ) $ 0.06 $ 0.05
 
Pro forma net income (loss) per share, basic $ 0.05 $ (0.01 ) $ 0.06 $ 0.04
Pro forma net income (loss) per share, diluted $ 0.05 $ (0.01 ) $ 0.06 $ 0.04
 
 
Weighted average shares outstanding:
Basic   51,056,462     45,707,802     49,040,344     45,398,933  
 
Diluted   52,978,051     45,707,802     51,223,048     47,975,548  
 
 
Pro forma weighted average shares outstanding:
Basic   51,056,462     45,707,802     49,040,344     45,398,933  
 
Diluted   52,978,051     45,707,802     51,223,048     47,975,548  
 
Paycom Software, Inc.
Condensed Consolidated Statements of Cash Flows

(in thousands, except share amounts)

(unaudited)
                 
Nine Months Ended September 30,
  2014     2013  
 
Operating activities
Net income $ 3,157 $ 2,571

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

Depreciation and amortization 5,198 4,036
Amortization of debt discount 67 178
Write off of debt issuance costs 4,051 -
Stock-based compensation 362 925
Change in fair value of derivative liability (1,107 ) 257
Changes in operating assets and liabilities:
Accounts receivable 237 (85 )
Prepaid expenses (94 ) (753 )
Inventory 195 (121 )
Deposits and other assets (145 ) (53 )
Income tax receivable 150 -
Deferred tax assets 1,250 1,211
Deferred tax liabilities 164 -
Income tax payable 148 -
Accounts payable (3,044 ) (159 )
Accrued commissions and bonuses (1,030 ) (1,195 )
Accrued payroll and vacation (422 ) (170 )
Deferred revenue 4,662 2,775
Accrued expenses and other liabilities   (498 )   2,679  
Net cash provided by operating activities   13,301     12,096  
Investing activities
Decrease in funds held for clients 62,146 82,294
Increase (decrease) in restricted cash 1 (1 )
Additions to property, plant and equipment   (11,948 )   (6,243 )
Net cash provided by investing activities   50,199     76,050  
Financing activities
Proceeds from issuance of long-term debt 6,539 -
Proceeds from initial public offering 62,842 -
Payments on long-term debt (65,442 ) 1,750
Decrease in client funds obligation (62,146 ) (82,294 )
Incentive awards redeemed - (1,061 )
Capital impact of reorganization (183 ) -
Capital contribution   1     1,162  
Net cash used in financing activities   (58,389 )   (80,443 )
Change in cash and cash equivalents 5,111 7,703
Cash and cash equivalents
Beginning of period   13,362     13,435  
End of period $ 18,473   $ 21,138  
 
Paycom Software, Inc.
Breakout of Stock-based Compensation Expense
(in thousands)
       
Three Months Ended September 30, Nine Months Ended September 30,
2014 2013 2014 2013
Stock-based compensation expense:
Operating expenses $ 4 $ 6 $ 19 $ 218
Sales and marketing 3 64 159 112
Research and development 2 11 7 340
General and administrative   79   -   177   255
$ 88 $ 81 $ 362 $ 925
 
       
Paycom Software, Inc.
Reconciliation of Net income (loss) to EBITDA and Adjusted EBITDA
(in thousands)
 
Three Months Ended September 30,   Nine Months Ended September 30,
2014 2013 2014 2013
Consolidated statements of income data:
Net income (loss) $ 2,690 $ (424 ) $ 3,157 $ 2,571
Interest expense 338 2,329 3,079 6,929
Taxes 1,689 (199 ) 2,028 1,211
Depreciation and amortization   1,797   1,453     5,198   4,036
EBITDA 6,514 3,159 13,462 14,747
Stock-based compensation expense 88 81 362 925
Transaction expenses - 532 1,363 663
Net loss on early extinguishment of debt   -   -     4,044   -
Adjusted EBITDA $ 6,602 $ 3,772   $ 19,231 $ 16,335
 
 
 
Paycom Software, Inc.
Reconciliation of Pro forma net income (loss) to Non-GAAP net income
(in thousands, expect per share amounts)
 
Three Months Ended September 30,   Nine Months Ended September 30,
2014 2013 2014 2013
Consolidated statements of income data:
Pro forma net income (loss) $ 2,690 $ (328 ) $ 3,157 $ 1,989
Tax adjusted stock-based compensation expense 51 43 211 491
Tax adjusted transaction expenses - 282 795 352
Tax adjusted net loss on early extinguishment of debt   -   -     2,358   -
Non-GAAP net income $ 2,741 $ (3 ) $ 6,521 $ 2,832
 
Non-GAAP net income per share, basic $ 0.05 $ (0.00 ) $ 0.13 $ 0.06
Non-GAAP net income per share, diluted $ 0.05 $ (0.00 ) $ 0.13 $ 0.06
 
Pro Forma weighted average shares outstanding:
Basic 51,056,462 45,707,802 49,040,344 45,398,933
Diluted 52,978,051 45,707,802 51,223,048 47,975,548

Paycom Software, Inc.
Media Contact:
Kathy Oden-Hall, 800-580-4505
CMO
Kathy.Oden-Hall@paycom.com
or
Investor Relations Contact:
855-603-1620
investors@paycom.com

Source: Paycom Software, Inc.

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