News Details

Third Quarter Revenue of $101.3 million, up 31% from comparable prior year period

Third Quarter GAAP Net Income of $14.1 million, or $0.24 per diluted share, up 127% from comparable prior year period

Third Quarter Adjusted EBITDA of $30.7 million, up 69% from comparable prior year period

Third Quarter non-GAAP Net Income of $17.0 million, or $0.29 per diluted share

OKLAHOMA CITY--(BUSINESS WIRE)-- Paycom Software, Inc. (“Paycom”) (NYSE: PAYC), a leading provider of comprehensive, cloud-based human capital management software, today announced its financial results for the quarter ended September 30, 2017.

“With third quarter revenues over $100 million and the launch of 10 internally built Learning Management courses, we’re pleased with another strong quarter of growth and innovation,” said Paycom’s founder and CEO, Chad Richison. “We also returned value to our shareholders by completing our second $50 million stock repurchase plan and I am happy to announce we have approved a third stock repurchase plan, increasing it to $75 million.”

Financial Highlights for the Third Quarter of 2017

Total Revenues of $101.3 million represented a 31% increase compared to total revenues of $77.3 million in the same period last year. Recurring revenues of $99.5 million also increased 31% from the comparable prior year period, and constituted 98% of total revenues.

GAAP Net Income was $14.1 million, or $0.24 per diluted share, compared to GAAP net income of $6.2 million, or $0.10 per diluted share, in the same period last year.

Adjusted EBITDA¹ was $30.7 million, compared to $18.2 million in the same period last year.

Non-GAAP Net Income¹ was $17.0 million, or $0.29 per diluted share, compared to $9.0 million, or $0.15 per diluted share, in the same period last year.

Cash and Cash Equivalents were $66.6 million as of September 30, 2017.

Total Debt was $34.4 million as of September 30, 2017. This debt consisted solely of borrowings related to the expansion of our 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 for additional information concerning these non-GAAP financial measures.

Financial Outlook

Paycom provides the following expected financial guidance for the quarter and year ending December 31, 2017:

Quarter Ending December 31, 2017

Total Revenues in the range of $111.5 million to $113.5 million.

Adjusted EBITDA in the range of $26 million to $28 million.

Year Ending December 31, 2017

Total Revenues in the range of $430.5 million to $432.5 million.

Adjusted EBITDA in the range of $131 million to $133 million.

We have not reconciled the Adjusted EBITDA ranges for the quarter or year ending December 31, 2017 to net income because applicable information for future periods, on which this reconciliation 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, a reconciliation of these Adjusted EBITDA ranges to net income is 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 Adjusted EBITDA and non-GAAP net income. Management uses Adjusted EBITDA and non-GAAP net income 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, and non-cash stock-based compensation expense; and (ii) non-GAAP net income as net income plus non-cash stock-based compensation expense, which is adjusted for the effect of income taxes. Adjusted EBITDA and non-GAAP net income are metrics that 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, repurchasing common stock and other purposes. Management believes that the non-GAAP measures presented in this press release, 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.

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, which we consider to be the most directly comparable GAAP measure. Adjusted EBITDA and non-GAAP net income have limitations as analytical tools, and when assessing our operating performance, you should not consider Adjusted EBITDA or non-GAAP net income in isolation, or as a substitute for net income or other consolidated statements of income data prepared in accordance with GAAP. 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, Oct. 31, 2017, at 5:00 p.m. Eastern time to discuss its financial results. To access this call, dial (866) 270-1533 (domestic) or (412) 317-0797 (international) and announce Paycom as the conference name to the operator. 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. A replay of this conference call can also be accessed by dialing (877) 344-7529 (domestic) or (412) 317-0088 (international) until Nov. 7, 2017. The replay passcode is 10113050.

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 has the ability to serve businesses of all sizes and in every industry. As one of the leading human capital management providers, Paycom serves clients in all 50 states from offices across the country.

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 the Company’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; trends, opportunities and risks affecting our business, industry and financial results; future expansion or growth plans and potential for future growth; 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 impact of future regulatory, judicial, or 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 ability to expand our corporate headquarters within an expected timeframe; our plans regarding our capital expenditures and investment activity as our business grows, including with respect to research and development; our expected income tax rate for future periods; our plans to purchase shares of our common stock through a stock repurchase plan; and the anticipated impact of recent hurricanes on our operating results in future periods. In addition, forward-looking statements also consist of statements involving trend analyses and statements including such words as “anticipate,” “believe,” “could,” “expect,” “may,” “might,” “plan,” “possible,” “potential,” “project,” “should,” “would,” and similar expressions or the negative of such terms or other comparable terminology. These forward-looking statements 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 Annual Report on Form 10-K for the year ended December 31, 2016. We do not undertake any obligation to update or revise the forward-looking statements to reflect events or circumstances that exist after the date on which such statements were made, except to the extent required by law.

Paycom Software, Inc.
Consolidated Balance Sheets
(in thousands, except share amounts)
(unaudited)
				September 30,					December 31,
				2017					2016
Assets
Current assets:
Cash and cash equivalents				$	66,610				$	60,158
Accounts receivable					1,444					1,339
Prepaid expenses					5,705					4,475
Inventory					750					675
Income tax receivable					9,247					692
Current assets before funds held for clients					83,756					67,339
Funds held for clients					792,734					858,244
Total current assets					876,490					925,583
Property and equipment, net					133,765					96,848
Deposits and other assets					1,341					1,215
Goodwill					51,889					51,889
Intangible assets, net					1,011					1,871
Deferred income tax assets, net					5,440					1,207
Total assets				$	1,069,936				$	1,078,613
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable				$	2,505				$	3,737
Accrued commissions and bonuses					6,782					8,003
Accrued payroll and vacation					9,096					4,769
Deferred revenue					6,526					5,230
Current portion of long-term debt					1,152					1,113
Accrued expenses and other current liabilities					18,817					17,798
Current liabilities before client funds obligation					44,878					40,650
Client funds obligation					792,734					858,244
Total current liabilities					837,612					898,894
Long-term deferred revenue					41,841					34,481
Net long-term debt, less current portion					33,218					28,711
Total long-term liabilities					75,059					63,192
Commitments and contingencies
Stockholders' equity:
Common stock, $0.01 par value (100,000,000 shares authorized, 59,953,932 and 58,453,283 shares issued at September 30, 2017 and December 31, 2016, respectively; 58,131,606 and 57,331,022 shares outstanding at September 30, 2017 and December 31, 2016, respectively)					599					585
Additional paid-in capital					129,770					95,452
Retained earnings					124,350					70,448
Treasury stock, at cost (1,822,326 and 1,122,261 shares at September 30, 2017 and December 31, 2016, respectively)					(97,454	)				(49,958	)
Total stockholders' equity					157,265					116,527
Total liabilities and stockholders' equity				$	1,069,936				$	1,078,613

Paycom Software, Inc.
Consolidated Statements of Income
(in thousands, except per share and share amounts)
(unaudited)
				Three Months Ended September 30,										Nine Months Ended September 30,
				2017					2016					2017					2016
Revenues
Recurring				$	99,498				$	75,857				$	313,763				$	237,253
Implementation and other					1,789					1,468					5,259					4,078
Total revenues					101,287					77,325					319,022					241,331
Cost of revenues
Operating expenses					15,324					13,227					46,019					34,491
Depreciation and amortization					2,502					1,521					6,829					4,093
Total cost of revenues					17,826					14,748					52,848					38,584
Administrative expenses
Sales and marketing					35,542					29,274					106,460					82,702
Research and development					8,112					6,232					23,004					14,294
General and administrative					25,967					24,457					70,450					54,883
Depreciation and amortization					2,403					2,032					7,069					5,578
Total administrative expenses					72,024					61,995					206,983					157,457
Total operating expenses					89,850					76,743					259,831					196,041
Operating income					11,437					582					59,191					45,290
Interest expense					(220	)				(252	)				(758	)				(733	)
Other income (expense), net					118					(213	)				362					(63	)
Income before income taxes					11,335					117					58,795					44,494
Provision for income taxes					(2,732	)				(6,081	)				4,893					9,287
Net income				$	14,067				$	6,198				$	53,902				$	35,207
Earnings per share, basic				$	0.24				$	0.11				$	0.93				$	0.61
Earnings per share, diluted				$	0.24				$	0.10				$	0.91				$	0.59
Weighted average shares outstanding:
Basic					58,003,222					57,819,734					57,751,204					57,515,846
Diluted					58,873,502					58,907,281					58,839,771					58,793,479

Paycom Software, Inc.
Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
				Nine Months Ended September 30,
				2017					2016
Cash flows from operating activities
Net income				$	53,902				$	35,207
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization					13,898					9,671
Amortization of debt issuance costs					92					96
Net loss on disposition of property and equipment					21					230
Stock-based compensation expense					31,757					18,742
Deferred income taxes, net					(4,233	)				(1,500	)
Changes in operating assets and liabilities:
Accounts receivable					(105	)				875
Prepaid expenses					(1,230	)				(460	)
Inventory					(75	)				963
Deposits and other assets					(126	)				276
Accounts payable					(1,463	)				(3,658	)
Income taxes, net					(8,555	)				2,427
Accrued commissions and bonuses					(1,221	)				(3,306	)
Accrued payroll and vacation					4,327					3,782
Deferred revenue					8,656					7,849
Accrued expenses and other current liabilities					(3,225	)				3,241
Net cash provided by operating activities					92,420					74,435
Cash flows from investing activities
Net change in funds held for clients					65,510					103,662
Purchases of property and equipment					(42,926	)				(32,130	)
Net cash provided by investing activities					22,584					71,532
Cash flows from financing activities
Proceeds from issuance of long-term debt					5,440					5,000
Repurchases of common stock					(19,391	)				(8,379	)
Withholding taxes paid related to net share settlement					(28,105	)				(14,396	)
Principal payments on long-term debt					(843	)				(702	)
Net change in client funds obligation					(65,510	)				(103,662	)
Payment of debt issuance costs					(143	)				(46	)
Net cash used in financing activities					(108,552	)				(122,185	)
Increase in cash and cash equivalents					6,452					23,782
Cash and cash equivalents
Beginning of period					60,158					50,714
End of period				$	66,610				$	74,496

Paycom Software, Inc.
Reconciliation of GAAP to non-GAAP Financial Measures
(in thousands, except share and per share amounts)
(unaudited)
				Three months ended September 30,										Nine months ended September 30,
				2017					2016					2017					2016
Net income to Adjusted EBITDA:
Net income				$	14,067				$	6,198				$	53,902				$	35,207
Interest expense					220					252					758					733
Provision for income taxes					(2,732	)				(6,081	)				4,893					9,287
Depreciation and amortization					4,905					3,553					13,898					9,671
EBITDA					16,460					3,922					73,451					54,898
Non-cash stock-based compensation expense					14,227					14,235					31,754					18,857
Adjusted EBITDA				$	30,687				$	18,157				$	105,205				$	73,755
				Three months ended September 30,										Nine months ended September 30,
				2017					2016					2017					2016
Net income to non-GAAP net income:
Net income				$	14,067				$	6,198				$	53,902				$	35,207
Non-cash stock-based compensation expense					14,227					14,235					31,754					18,857
Income tax effect on non-GAAP adjustment					(11,296	)				(11,472	)				(25,775	)				(13,234	)
Non-GAAP net income				$	16,998				$	8,961				$	59,881				$	40,830
Weighted average shares outstanding:
Basic					58,003,222					57,819,734					57,751,204					57,515,846
Diluted					58,873,502					58,907,281					58,839,771					58,793,479
Earnings per share, basic				$	0.24				$	0.11				$	0.93				$	0.61
Earnings per share, diluted				$	0.24				$	0.10				$	0.91				$	0.59
Non-GAAP net income per share, basic				$	0.29				$	0.15				$	1.04				$	0.71
Non-GAAP net income per share, diluted				$	0.29				$	0.15				$	1.02				$	0.69
				Three months ended September 30,										Nine months ended September 30,
				2017					2016					2017					2016
Earnings per share to non-GAAP net income per share, basic:
Earnings per share, basic				$	0.24				$	0.11				$	0.93				$	0.61
Non-cash stock-based compensation expense					0.24					0.24					0.55					0.33
Income tax effect on non-GAAP adjustment					(0.19	)				(0.20	)				(0.44	)				(0.23	)
Non-GAAP net income per share, basic				$	0.29				$	0.15				$	1.04				$	0.71
				Three months ended September 30,										Nine months ended September 30,
				2017					2016					2017					2016
Earnings per share to non-GAAP net income per share, diluted:
Earnings per share, diluted				$	0.24				$	0.10				$	0.91				$	0.59
Non-cash stock-based compensation expense					0.24					0.24					0.54					0.32
Income tax effect on non-GAAP adjustment					(0.19	)				(0.19	)				(0.43	)				(0.22	)
Non-GAAP net income per share, diluted				$	0.29				$	0.15				$	1.02				$	0.69
				Three months ended September 30,										Nine months ended September 30,
				2017					2016					2017					2016
Adjusted gross profit:
Total revenues				$	101,287				$	77,325				$	319,022				$	241,331
Less: Total cost of revenues					(17,826	)				(14,748	)				(52,848	)				(38,584	)
Total gross profit					83,461					62,577					266,174					202,747
Plus: Non-cash stock-based compensation expense					1,488					1,311					3,199					1,725
Total adjusted gross profit				$	84,949				$	63,888				$	269,373				$	204,472
Total gross profit %					82	%				81	%				83	%				84	%
Total adjusted gross profit %					84	%				83	%				84	%				85	%
				Three months ended September 30,										Nine months ended September 30,
				2017					2016					2017					2016
Adjusted sales and marketing expenses:
Sales and marketing expenses				$	35,542				$	29,274				$	106,460				$	82,702
Less: Non-cash stock-based compensation expense					(2,019	)				(1,654	)				(4,511	)				(2,723	)
Total adjusted sales and marketing expenses				$	33,523				$	27,620				$	101,949				$	79,979
Total revenues				$	101,287				$	77,325				$	319,022				$	241,331
Total adjusted sales and marketing expenses as a % of revenues					33.1	%				35.7	%				32.0	%				33.1	%
				Three months ended September 30,										Nine months ended September 30,
				2017					2016					2017					2016
Adjusted administrative expenses:
Administrative expenses				$	72,024				$	61,995				$	206,983				$	157,457
Less: Non-cash stock-based compensation expense					(12,739	)				(12,924	)				(28,555	)				(17,132	)
Total adjusted administrative expenses				$	59,285				$	49,071				$	178,428				$	140,325
Total revenues				$	101,287				$	77,325				$	319,022				$	241,331
Total adjusted administrative expenses as a % of revenues					58.5	%				63.5	%				55.9	%				58.1	%
				Three months ended September 30,										Nine months ended September 30,
				2017					2016					2017					2016
Adjusted research and development expenses:
Research and development expenses				$	8,112				$	6,232				$	23,004				$	14,294
Less: Non-cash stock-based compensation expense					(734	)				(496	)				(1,514	)				(676	)
Total adjusted research and development expenses				$	7,378				$	5,736				$	21,490				$	13,618
Total revenues				$	101,287				$	77,325				$	319,022				$	241,331
Total adjusted research and development expenses as a % of revenues					7.3	%				7.4	%				6.7	%				5.6	%
				Three months ended September 30,										Nine months ended September 30,
				2017					2016					2017					2016
Total research and development costs:
Capitalized research and development costs				$	4,665				$	2,898				$	11,048				$	6,605
Research and development expenses					8,112					6,232					23,004					14,294
Total research and development costs				$	12,777				$	9,130				$	34,052				$	20,899
Total revenues				$	101,287				$	77,325				$	319,022				$	241,331
Total research and development costs as a % of revenues					12.6	%				11.8	%				10.7	%				8.7	%
Total adjusted research and development costs:
Total research and development costs				$	12,777				$	9,130				$	34,052				$	20,899
Less: Capitalized non-cash stock-based compensation					(1,262	)				(1,074	)				(2,579	)				(1,434	)
Less: Non-cash stock-based compensation expense					(734	)				(496	)				(1,514	)				(676	)
Total adjusted research and development costs				$	10,781				$	7,560				$	29,959				$	18,789
Total revenues				$	101,287				$	77,325				$	319,022				$	241,331
Total adjusted research and development costs as a % of revenues					10.6	%				9.8	%				9.4	%				7.8	%

Paycom Software, Inc.
Breakout of Non-Cash Stock-Based Compensation Expense
(in thousands)
(unaudited)
				Three months ended September 30,								Nine months ended September 30,
				2017				2016				2017				2016
Non-cash stock-based compensation expense:
Operating expenses				$	1,488			$	1,311			$	3,199			$	1,725
Sales and marketing					2,019				1,654				4,511				2,723
Research and development					734				496				1,514				676
General and administrative					9,986				10,774				22,530				13,733
Total non-cash stock-based compensation expense				$	14,227			$	14,235			$	31,754			$	18,857

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Source: Paycom Software, Inc.