In this video, I will talk about Paycom (PAYC 0.95%), which is down 50% since last year's high, explain why that happened, and why there might still be a bright future for the company and stock.*Stock prices used were from the trading day of Jan. 5, 2024. The video was published on Jan. 8, 2024. ...

Paycom Software (PAYC) has recently been on Zacks.com's list of the most searched stocks. Therefore, you might want to consider some of the key factors that could influence the stock's performance in the near future.Over the past month, shares of this maker of human-resources and payroll software have returned +4.8%, compared to the Zacks S&P 500 composite's +3.4% change. During this period, the Zacks Internet - Software industry, which Paycom falls in, has gained 3%. The key question now is: What could be ...

Paycom Software (PAYC 0.35%) has been a perennial wealth creator. The cloud-based payroll-software provider has delivered a staggering 30% annualized return since its initial public offering (IPO) in 2014 (1,170% overall). That has absolutely pulverized the S&P 500's return (155% or 10.1% annualized). However, Paycom stock has fallen on hard times this year. Shares have lost one-third of their value over the past year and plunged 45% from their 52-week high. That has been an abysmal performance compared to ...

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, 2023 ☐ 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 ...

Financial Data and Key Metrics Changes - Revenue for Q3 2023 was $406.3 million, up approximately 22% year-over-year, but below guidance due to lower-than-expected service revenues and unscheduled payroll runs [15][53] - Adjusted net income was $102.4 million or $1.77 per diluted share, representing a 39% increase from the prior year [117] - Adjusted EBITDA for Q3 was $165.6 million, with a margin of nearly 41%, up over 300 basis points year-over-year [51][53] Business Line Data and Key Metrics Changes - Adjusted sales and marketing expense was $94.3 million, representing 23.2% of revenues, while adjusted R&D expense was $46.2 million, or 11.4% of total revenues, up 20 basis points year-over-year [5] - The capitalization rate increased approximately 33% in the quarter due to investments in new products and international expansion efforts [16] Market Data and Key Metrics Changes - The average daily balance of funds held on behalf of clients was approximately $2.1 billion in Q3 2023 [52] - The company is expanding its global payroll product to include Mexico, following the rollout in Canada [13] Company Strategy and Development Direction - The company is focused on automating and innovating its current products, with a strong emphasis on the Beti platform, which allows employees to manage their own payroll [12][26] - Strategic revenue decisions are being made to ensure clients achieve full value from the services, which may impact revenue growth in the short term [32][96] Management's Comments on Operating Environment and Future Outlook - Management expects Q4 2023 total revenues to be in the range of $420 million to $425 million, representing a growth rate of approximately 14% year-over-year at the midpoint [17] - For 2024, the company anticipates year-over-year revenue growth of between 10% and 12%, with more visibility to be provided in early February [18] Other Important Information - The company repurchased over $76 million worth of stock and paid nearly $22 million in cash dividends during the quarter [117] - The effective income tax rate for the full year of 2023 is expected to be approximately 29% on a GAAP basis and approximately 26.5% on a non-GAAP basis [16] Q&A Session Summary Question: What is the impact of Beti on service revenues? - Management indicated that Beti's adoption has led to a reduction in unscheduled payroll runs and corrections, which has moderated service revenues [34] Question: How is demand trending in the SMB and mid-market segments? - Demand remains strong, and the company is not experiencing issues in its go-to-market strategy [42] Question: What are the strategic initiatives affecting revenue growth? - Strategic decisions are being made to ensure clients achieve full value, which may lead to a deceleration in revenue growth [96] Question: How is the company addressing the impact of macroeconomic headwinds? - Management noted that macro headwinds, particularly related to pre-employment services, are being monitored, but they do not expect significant changes in demand [102][109] Question: What is the outlook for international revenue generation? - The company is seeing growth in international efforts, particularly with the expansion of its global HCM product, which is expected to ramp up [99]

```markdown PART I – FINANCIAL INFORMATION [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) Presents Paycom's unaudited consolidated financial statements, including Balance Sheets, Income, Equity, Cash Flows, and detailed notes on accounting policies and events [Unaudited Consolidated Balance Sheets](index=3&type=section&id=Unaudited%20Consolidated%20Balance%20Sheets) Consolidated Balance Sheet Highlights (in thousands) | Item | June 30, 2023 | December 31, 2022 | | :---------------------------------- | :-------------- | :------------------ | | **Assets** | | | | Cash and cash equivalents | $536,545 | $400,730 | | Funds held for clients | $2,002,492 | $2,202,975 | | Total current assets | $2,708,194 | $2,764,172 | | Property and equipment, net | $444,992 | $402,448 | | Total assets | $3,951,341 | $3,902,513 | | **Liabilities & Stockholders' Equity** | | | | Client funds obligation | $2,006,154 | $2,207,706 | | Total current liabilities | $2,186,727 | $2,377,037 | | Total liabilities | $2,544,656 | $2,719,906 | | Total stockholders' equity | $1,406,685 | $1,182,607 | | Total liabilities and stockholders' equity | $3,951,341 | $3,902,513 | [Unaudited Consolidated Statements of Comprehensive Income](index=4&type=section&id=Unaudited%20Consolidated%20Statements%20of%20Comprehensive%20Income) Consolidated Statements of Comprehensive Income Highlights (in thousands, except per share) | Item | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total revenues | $401,139 | $316,924 | $852,776 | $670,443 | | Total operating expenses | $313,873 | $244,611 | $605,078 | $471,863 | | Operating income | $87,266 | $72,313 | $247,698 | $198,580 | | Income before income taxes | $92,847 | $72,837 | $258,446 | $200,301 | | Net income | $64,516 | $57,355 | $183,812 | $149,285 | | Earnings per share, basic | $1.11 | $0.99 | $3.17 | $2.57 | | Earnings per share, diluted | $1.11 | $0.99 | $3.17 | $2.57 | | Comprehensive earnings (loss) | $64,376 | $56,874 | $184,522 | $147,685 | [Unaudited Consolidated Statements of Stockholders' Equity](index=5&type=section&id=Unaudited%20Consolidated%20Statements%20of%20Stockholders%27%20Equity) Consolidated Statements of Stockholders' Equity Highlights (in thousands) | Item | December 31, 2022 | March 31, 2023 | June 30, 2023 | | :--------------------------------- | :------------------ | :--------------- | :-------------- | | Total Stockholders' Equity | $1,182,607 | $1,334,471 | $1,406,685 | | Common Stock (Shares) | 62,518 | 62,525 | 62,640 | | Additional Paid-in Capital | $576,622 | $608,966 | $649,965 | | Retained Earnings | $1,196,968 | $1,316,264 | $1,358,059 | | Treasury Stock (Amount) | $(587,905) | $(588,531) | $(598,972) | | Net income (Q2 2023) | - | - | $64,516 | | Dividends declared (Q2 2023) | - | - | $(22,721) | [Unaudited Consolidated Statements of Cash Flows](index=6&type=section&id=Unaudited%20Consolidated%20Statements%20of%20Cash%20Flows) Consolidated Statements of Cash Flows Highlights (Six Months Ended June 30, in thousands) | Cash Flow Activity | 2023 | 2022 | % Change | | :----------------------------------------------------------------- | :--------- | :----------- | :------- | | Net cash provided by operating activities | $251,991 | $168,958 | 49% | | Net cash used in investing activities | $(83,378) | $(22,510) | 270% | | Net cash (used in) provided by financing activities | $(234,350) | $1,477,971 | -116% | | (Decrease) increase in cash, cash equivalents, restricted cash and restricted cash equivalents | $(65,737) | $1,624,419 | -104% | | Cash, cash equivalents, restricted cash and restricted cash equivalents, end of period | $2,343,358 | $3,437,110 | -31.8% | [Notes to the Unaudited Consolidated Financial Statements](index=7&type=section&id=Notes%20to%20the%20Unaudited%20Consolidated%20Financial%20Statements) [1. ORGANIZATION AND DESCRIPTION OF BUSINESS](index=7&type=section&id=1.%20ORGANIZATION%20AND%20DESCRIPTION%20OF%20BUSINESS) - Paycom Software, Inc. is a leading provider of a comprehensive, cloud-based human capital management (HCM) solution delivered as Software-as-a-Service (SaaS)[18](index=18&type=chunk) - The solution manages the complete employment lifecycle, from recruitment to retirement, with functionality and data analytics for talent acquisition, time and labor management, payroll, talent management, and HR management applications, all based on a single database[19](index=19&type=chunk) [2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES](index=7&type=section&id=2.%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) - The unaudited interim consolidated financial statements are prepared in accordance with U.S. GAAP and SEC regulations, reflecting all necessary normal recurring adjustments[21](index=21&type=chunk) - Recently adopted accounting pronouncements (ASU 2020-04 and ASU 2021-01) related to reference rate reform had no material impact on the interim consolidated financial statements due to the termination of the interest rate swap in August 2022[22](index=22&type=chunk)[23](index=23&type=chunk) - Revenues are seasonal, with higher recurring revenues expected in the first and fourth quarters due to annual payroll tax filing forms (W-2, 1099, 1095) and unscheduled payroll runs (bonuses)[25](index=25&type=chunk) [3. REVENUE](index=8&type=section&id=3.%20REVENUE) - Recurring revenues are primarily derived from various HCM applications (talent acquisition, time and labor management, payroll, talent management, HR management, Global HCM) and fees for form filings and payroll check/report delivery[31](index=31&type=chunk)[32](index=32&type=chunk) - Interest income earned on funds held for clients (collected for payroll tax submissions and employee payment services) is included in recurring revenues[35](index=35&type=chunk) - Implementation and other revenues consist of nonrefundable upfront conversion fees for new client set-up (deferred and recognized ratably over a ten-year estimated client life) and sales of time clocks[36](index=36&type=chunk)[37](index=37&type=chunk)[38](index=38&type=chunk) Deferred Revenue Related to Material Rights (in thousands) | Period | Balance, beginning of period | Recognition of revenue | Contract balance, net of revenue recognized | Balance, end of period | | :-------------------------------- | :--------------------------- | :--------------------- | :------------------------------------------ | :--------------------- | | Three Months Ended June 30, 2023 | $120,802 | $(5,507) | $8,938 | $124,233 | | Three Months Ended June 30, 2022 | $104,816 | $(4,621) | $8,685 | $108,880 | | Six Months Ended June 30, 2023 | $117,416 | $(10,593) | $17,410 | $124,233 | | Six Months Ended June 30, 2022 | $101,426 | $(8,842) | $16,296 | $108,880 | - The company expects to recognize **$11.1 million** of deferred revenue related to material rights in the remainder of 2023, **$20.3 million** in 2024, and **$92.8 million** thereafter[40](index=40&type=chunk) Contract Costs Capitalization and Amortization (in thousands) | Item | Beginning Balance (Q2 2023) | Capitalization of Costs (Q2 2023) | Amortization (Q2 2023) | Ending Balance (Q2 2023) | | :----------------------- | :-------------------------- | :------------------------ | :--------------------- | :----------------------- | | Costs to obtain a contract | $343,991 | $19,937 | $(13,442) | $350,486 | | Costs to fulfill a contract | $360,588 | $32,514 | $(12,778) | $380,324 | | | | | | | Item | Beginning Balance (YTD Q2 2023) | Capitalization of Costs (YTD Q2 2023) | Amortization (YTD Q2 2023) | Ending Balance (YTD Q2 2023) | | :----------------------- | :-------------------------- | :------------------------ | :--------------------- | :----------------------- | | Costs to obtain a contract | $325,457 | $51,434 | $(26,405) | $350,486 | | Costs to fulfill a contract | $338,895 | $66,162 | $(24,733) | $380,324 | [4. PROPERTY AND EQUIPMENT](index=11&type=section&id=4.%20PROPERTY%20AND%20EQUIPMENT) Property and Equipment, Net (in thousands) | Item | June 30, 2023 | December 31, 2022 | | :-------------------------------- | :-------------- | :------------------ | | Software and capitalized software costs | $315,858 | $270,645 | | Buildings | $178,820 | $177,765 | | Computer equipment | $147,355 | $133,715 | | Total Property and equipment | $729,475 | $663,706 | | Less: accumulated depreciation and amortization | $(381,798) | $(331,340) | | Property and equipment, net | $444,992 | $402,448 | - Capitalized computer software development costs for internal use were **$22.9 million** for Q2 2023 (up from **$16.4 million** in Q2 2022) and **$44.2 million** for YTD Q2 2023 (up from **$31.8 million** in YTD Q2 2022)[44](index=44&type=chunk) - Depreciation and amortization expense for property and equipment was **$26.8 million** for Q2 2023 (up from **$21.6 million** in Q2 2022) and **$52.1 million** for YTD Q2 2023 (up from **$42.2 million** in YTD Q2 2022)[47](index=47&type=chunk) [5. GOODWILL AND INTANGIBLE ASSETS, NET](index=11&type=section&id=5.%20GOODWILL%20AND%20INTANGIBLE%20ASSETS%2C%20NET) - Goodwill remained stable at **$51.9 million** as of June 30, 2023, with no impairment indicators[48](index=48&type=chunk) - The company has a naming rights intangible asset for the Oklahoma City arena, valued at **$52.1 million** net as of June 30, 2023, being amortized over **13.3 years**[49](index=49&type=chunk)[50](index=50&type=chunk) - Amortization of intangible assets was **$1.0 million** for Q2 2023 and **$2.0 million** for YTD Q2 2023, with estimated future annual amortization of **$3.9 million** from 2024-2028[50](index=50&type=chunk) [6. LONG-TERM DEBT](index=12&type=section&id=6.%20LONG-TERM%20DEBT) - Long-term debt as of June 30, 2023, and December 31, 2022, was **$29.0 million**, consisting of the July 2022 Revolving Credit Facility[51](index=51&type=chunk) - The July 2022 Revolving Credit Facility, initially **$650.0 million**, was increased to **$1.0 billion** on July 28, 2023, and the **$750.0 million** Term Loan Facility was terminated without any draws[58](index=58&type=chunk)[60](index=60&type=chunk) - The company is required to maintain a consolidated interest ratio of not less than **3.0 to 1.0** and a consolidated leverage ratio of not greater than **3.75 to 1.0**, and was in compliance as of June 30, 2023[62](index=62&type=chunk) [7. DERIVATIVE INSTRUMENTS](index=14&type=section&id=7.%20DERIVATIVE%20INSTRUMENTS) - The floating-to-fixed interest rate swap, used to limit exposure to variable interest rates on the 2017 Term Loans, was terminated on August 24, 2022, resulting in a cash receipt of **$0.5 million**[65](index=65&type=chunk)[66](index=66&type=chunk) - The adoption of ASU 2020-04 and ASU 2021-01 related to reference rate reform had no material impact on the interim consolidated financial statements due to the termination of the interest rate swap[22](index=22&type=chunk)[23](index=23&type=chunk) [8. CORPORATE INVESTMENTS AND FUNDS HELD FOR CLIENTS](index=15&type=section&id=8.%20CORPORATE%20INVESTMENTS%20AND%20FUNDS%20HELD%20FOR%20CLIENTS) Cash, Cash Equivalents, and Investments (in thousands) | Type of issue | Amortized cost (June 30, 2023) | Fair value (June 30, 2023) | | :--------------------------------- | :----------------------------- | :------------------------- | | Cash and cash equivalents | $536,545 | $536,545 | | Funds held for clients' cash and cash equivalents | $1,806,813 | $1,806,813 | | Certificates of deposit | $25,000 | $25,000 | | U.S. treasury securities | $174,621 | $170,679 | | Total investments | $2,542,979 | $2,539,037 | Unrealized Losses on Available-for-Sale Securities (June 30, 2023, in thousands) | Type of issue | Gross unrealized losses (less than 12 months) | Fair value (less than 12 months) | Gross unrealized losses (more than 12 months) | Fair value (more than 12 months) | Total Gross unrealized losses | Total Fair value | | :---------------------- | :-------------------------------------------- | :------------------------------- | :-------------------------------------------- | :------------------------------- | :---------------------------- | :--------------- | | U.S. treasury securities | $(1,361) | $58,482 | $(2,581) | $112,197 | $(3,942) | $170,679 | - The company believes unrealized losses on U.S. treasury securities are due to interest rate changes, not credit risk, and expects to collect principal and interest[70](index=70&type=chunk) [9. FAIR VALUE OF FINANCIAL INSTRUMENTS](index=16&type=section&id=9.%20FAIR%20VALUE%20OF%20FINANCIAL%20INSTRUMENTS) - The carrying amount of cash and cash equivalents, accounts receivable, accounts payable, funds held for clients, and client funds obligation approximates fair value due to their short-term nature[72](index=72&type=chunk) Assets Measured at Fair Value on a Recurring Basis (June 30, 2023, in thousands) | Assets | Level 1 | Level 2 | Level 3 | Total | | :---------------------- | :------ | :-------- | :------ | :-------- | | Certificates of deposit | $— | $25,000 | $— | $25,000 | | U.S. treasury securities | $— | $170,679 | $— | $170,679 | [10. EMPLOYEE SAVINGS PLAN AND EMPLOYEE STOCK PURCHASE PLAN](index=17&type=section&id=10.%20EMPLOYEE%20SAVINGS%20PLAN%20AND%20EMPLOYEE%20STOCK%20PURCHASE%20PLAN) - 401(k) matching contributions were **$3.8 million** for Q2 2023 (up from **$3.1 million** in Q2 2022) and **$7.8 million** for YTD Q2 2023 (up from **$6.6 million** in YTD Q2 2022)[78](index=78&type=chunk) - Under the ESPP, eligible employees purchased 35,628 shares in YTD Q2 2023 (up from 31,350 in YTD Q2 2022), with compensation expense of **$1.8 million** for YTD Q2 2023 (up from **$1.4 million** in YTD Q2 2022)[79](index=79&type=chunk) [11. EARNINGS PER SHARE](index=17&type=section&id=11.%20EARNINGS%20PER%20SHARE) Earnings Per Share Reconciliation (in thousands, except per share amounts) | Item | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income | $64,516 | $57,355 | $183,812 | $149,285 | | Basic weighted average shares outstanding | 57,920 | 57,969 | 57,895 | 57,992 | | Diluted weighted average shares outstanding | 58,033 | 58,067 | 58,050 | 58,186 | | Earnings per share, basic | $1.11 | $0.99 | $3.17 | $2.57 | | Earnings per share, diluted | $1.11 | $0.99 | $3.17 | $2.57 | [12. STOCK-BASED COMPENSATION](index=18&type=section&id=12.%20STOCK-BASED%20COMPENSATION) - In May 2023, stockholders approved the 2023 Long-Term Incentive Plan (LTIP) with a maximum of **3.6 million** shares for equity-based awards[83](index=83&type=chunk) - During YTD Q2 2023, 538,113 restricted shares were issued, comprising 87,618 Market-Based Shares (vesting based on VWAP targets of **$404** and **$466**) and 450,495 Time-Based Shares (vesting over 3-4 years)[84](index=84&type=chunk) Restricted Stock Awards Activity (Six Months Ended June 30, 2023, in thousands) | Item | Time-Based Restricted Stock Awards (Shares) | Market-Based Restricted Stock Awards (Shares) | | :-------------------------------------------------- | :------------------------------------------ | :-------------------------------------------- | | Unvested shares outstanding at December 31, 2022 | 479.1 | 1,677.0 | | Granted | 450.5 | 87.6 | | Vested | (116.1) | — | | Forfeited | (43.6) | (11.7) | | Unvested shares outstanding at June 30, 2023 | 769.9 | 1,752.9 | - Total stock-based compensation expense was **$35.3 million** for Q2 2023 (up from **$24.3 million** in Q2 2022) and **$63.2 million** for YTD Q2 2023 (up from **$46.3 million** in YTD Q2 2022)[93](index=93&type=chunk) - Unrecognized compensation cost for restricted stock awards was **$301.3 million** with a weighted average recognition period of **2.69 years**, and for restricted stock units was **$15.7 million** with a **1.0-year** recognition period as of June 30, 2023[95](index=95&type=chunk) - In May 2023, the Board adopted a dividend policy, and all unvested restricted stock, RSUs, and PSUs are entitled to dividend equivalents upon vesting[96](index=96&type=chunk) [13. COMMITMENTS AND CONTINGENCIES](index=20&type=section&id=13.%20COMMITMENTS%20AND%20CONTINGENCIES) - The company is involved in various legal proceedings in the ordinary course of business, but believes their resolution will not have a material adverse effect on its business, financial condition, results of operations, or cash flows[97](index=97&type=chunk) [14. INCOME TAXES](index=20&type=section&id=14.%20INCOME%20TAXES) - The effective income tax rate increased to **28.9%** for YTD Q2 2023, up from **25.5%** for YTD Q2 2022, primarily due to a decrease in excess tax benefits from stock-based compensation and a reduction of research and development credits[98](index=98&type=chunk) [15. SUBSEQUENT EVENTS](index=21&type=section&id=15.%20SUBSEQUENT%20EVENTS) - On July 28, 2023, the Revolving Credit Facility was increased from **$650.0 million** to **$1.0 billion**, and the Term Loan Facility was terminated without any draws[100](index=100&type=chunk) - The company intends to form Paycom Client Trust to hold client payroll funds and Paycom National Trust Bank, NA to serve as its trustee[100](index=100&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=22&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management's discussion of Paycom's financial condition, operational results, liquidity, growth strategies, and non-GAAP measures for the period [Overview](index=23&type=section&id=Overview) - Paycom is a leading provider of a comprehensive, cloud-based Human Capital Management (HCM) solution, managing the entire employment lifecycle from recruitment to retirement[107](index=107&type=chunk) - Revenues are generated from fixed amounts per billing period plus a fee per employee or transaction, with no long-term contractual commitments required from clients[108](index=108&type=chunk) - Growth strategy focuses on attracting new clients, increasing client employee usage across the solution, and introducing new applications to the existing client base, supported by expanding sales offices and marketing efforts[109](index=109&type=chunk)[110](index=110&type=chunk) [Growth Outlook, Opportunities and Challenges](index=24&type=section&id=Growth%20Outlook%2C%20Opportunities%20and%20Challenges) - The payroll application is the foundation of the solution, and revenue mix is evolving with the introduction of new non-payroll applications like Beti technology, which empowers employees to do their own payroll[113](index=113&type=chunk) - The target client size range has expanded to include enterprise organizations with more than 10,000 employees, representing a substantial opportunity to increase revenues per client with limited incremental cost[114](index=114&type=chunk) - Interest earned on funds held for clients is expected to increase with client base expansion and new applications, but is sensitive to changes in interest rates[115](index=115&type=chunk) - The business is seasonal, with higher recurring revenues in the first and fourth quarters due to payroll tax form processing and unscheduled payroll runs[118](index=118&type=chunk) - Gross margins were approximately **83%** for Q2 2023 and **84%** for YTD Q2 2023, expected to remain relatively consistent[119](index=119&type=chunk) [Results of Operations](index=25&type=section&id=Results%20of%20Operations) The company experienced significant revenue growth for both the three and six months ended June 30, 2023, driven by new clients, sales office productivity, and increased interest income. Operating expenses also rose due to employee-related costs and marketing investments, while the effective tax rate increased Consolidated Statements of Income Data (as % of Total Revenues) | Item | Q2 2023 (% of Total Revenues) | Q2 2022 (% of Total Revenues) | YTD Q2 2023 (% of Total Revenues) | YTD Q2 2022 (% of Total Revenues) | | :--------------------------------- | :---------------------------- | :---------------------------- | :-------------------------------- | :-------------------------------- | | Total revenues | 100.0% | 100.0% | 100.0% | 100.0% | | Total cost of revenues | 16.8% | 15.8% | 15.6% | 14.7% | | Total administrative expenses | 61.4% | 61.4% | 55.4% | 55.6% | | Total operating expenses | 78.2% | 77.2% | 71.0% | 70.3% | | Operating income | 21.8% | 22.8% | 29.0% | 29.7% | | Income before income taxes | 23.1% | 23.0% | 30.3% | 29.9% | | Net income | 16.1% | 18.1% | 21.6% | 22.3% | [Revenues](index=25&type=section&id=Revenues) - Total revenues increased by **26.6%** for Q2 2023 and **27.2%** for YTD Q2 2023, driven by new clients, productivity gains in mature sales offices, additional application sales, and increased interest earned on client funds due to rising interest rates[120](index=120&type=chunk)[121](index=121&type=chunk) - Recurring revenues grew by **26.6%** for Q2 2023 and **27.2%** for YTD Q2 2023[120](index=120&type=chunk) - Implementation and other revenues increased by **22.8%** for Q2 2023 and **28.7%** for YTD Q2 2023, primarily due to higher non-refundable upfront conversion fees from new clients[120](index=120&type=chunk)[122](index=122&type=chunk) [Expenses](index=27&type=section&id=Expenses) - Operating expenses increased by **$15.0 million** for Q2 2023 and **$29.6 million** for YTD Q2 2023, mainly due to growth in employee-related expenses, shipping, supplies, and automated clearing house fees[125](index=125&type=chunk)[126](index=126&type=chunk) - Sales and marketing expenses rose by **$18.7 million** for Q2 2023 and **$47.3 million** for YTD Q2 2023, driven by increased employee-related expenses (commissions/bonuses) and marketing/advertising spending[127](index=127&type=chunk)[128](index=128&type=chunk) - Research and development expenses increased by **$12.3 million** for Q2 2023 and **$23.4 million** for YTD Q2 2023, primarily due to higher employee-related expenses[129](index=129&type=chunk) Capitalized vs. Expensed R&D Costs (in thousands) | Item | Q2 2023 | Q2 2022 | % Change | YTD Q2 2023 | YTD Q2 2022 | % Change | | :------------------------------------ | :-------- | :-------- | :------- | :---------- | :---------- | :------- | | Capitalized portion of R&D | $22,878 | $16,440 | 39% | $44,231 | $31,840 | 39% | | Expensed portion of R&D | $49,118 | $36,803 | 33% | $91,787 | $68,408 | 34% | | Total research and development costs | $71,996 | $53,243 | 35% | $136,018 | $100,248 | 36% | - General and administrative expenses increased by **$18.1 million** for Q2 2023 and **$23.2 million** for YTD Q2 2023, mainly due to higher employee-related expenses and accounting/legal fees[132](index=132&type=chunk)[133](index=133&type=chunk) [Non-Cash Stock-Based Compensation Expense](index=28&type=section&id=Non-Cash%20Stock-Based%20Compensation%20Expense) Non-Cash Stock-Based Compensation Expense (in thousands) | Item | Q2 2023 | Q2 2022 | % Change | YTD Q2 2023 | YTD Q2 2022 | % Change | | :------------------------------------ | :-------- | :-------- | :------- | :---------- | :---------- | :------- | | Operating expenses | $3,353 | $1,347 | 149% | $5,738 | $2,329 | 146% | | Sales and marketing | $6,040 | $5,029 | 20% | $11,516 | $7,906 | 46% | | Research and development | $6,639 | $2,857 | 132% | $11,897 | $5,076 | 134% | | General and administrative | $19,334 | $15,035 | 29% | $34,034 | $31,012 | 10% | | Total non-cash stock-based compensation expense | $35,366 | $24,268 | 46% | $63,185 | $46,323 | 36% | [Depreciation and Amortization](index=28&type=section&id=Depreciation%20and%20Amortization) - Depreciation and amortization expense increased for both Q2 2023 and YTD Q2 2023 compared to prior year periods, primarily due to the development of additional technology and purchases of other fixed assets[135](index=135&type=chunk) [Interest Expense](index=28&type=section&id=Interest%20Expense) - Interest expense increased for both Q2 2023 and YTD Q2 2023 compared to prior year periods, attributed to the timing of entering into the Credit Agreement on July 29, 2022[136](index=136&type=chunk) [Other Income (Expense), net](index=28&type=section&id=Other%20Income%20%28Expense%29%2C%20net) - Other income (expense), net, significantly increased to **$6.2 million** for Q2 2023 and **$11.4 million** for YTD Q2 2023, primarily due to income earned on corporate funds[137](index=137&type=chunk) [Provision for Income Taxes](index=28&type=section&id=Provision%20for%20Income%20Taxes) - The effective income tax rate increased to **28.9%** for YTD Q2 2023 (from **25.5%** in YTD Q2 2022) due to a decrease in excess tax benefits from stock-based compensation and reduced research and development credits[138](index=138&type=chunk) [Liquidity and Capital Resources](index=28&type=section&id=Liquidity%20and%20Capital%20Resources) - Principal sources of capital and liquidity are operating cash flow, cash and cash equivalents, and a **$1.0 billion** senior secured revolving credit facility, with **$29.0 million** outstanding as of June 30, 2023[139](index=139&type=chunk) - The company believes existing cash, operating cash flow, and available liquidity will be sufficient to maintain operations, fund capital expenditures, pay dividends, and repurchase shares for at least the next 12 months[140](index=140&type=chunk) - The Board of Directors authorized a stock repurchase plan of up to **$1.1 billion**, with **$1.1 billion** remaining available as of June 30, 2023, expiring August 15, 2024[147](index=147&type=chunk) - In May 2023, the Board adopted a dividend policy, declaring a quarterly cash dividend of **$0.375** per share, paid on June 12, 2023, and another declared on July 31, 2023[149](index=149&type=chunk) [Cash Flow Analysis](index=30&type=section&id=Cash%20Flow%20Analysis) Summary of Consolidated Statements of Cash Flows (Six Months Ended June 30, in thousands) | Cash Flow Activity | 2023 | 2022 | % Change | | :----------------------------------------------------------------- | :--------- | :----------- | :------- | | Net cash provided by operating activities | $251,991 | $168,958 | 49% | | Net cash used in investing activities | $(83,378) | $(22,510) | 270% | | Net cash (used in) provided by financing activities | $(234,350) | $1,477,971 | -116% | | Change in cash, cash equivalents, restricted cash and restricted cash equivalents | $(65,737) | $1,624,419 | -104% | - Operating cash flows for YTD Q2 2023 were positively impacted by business growth, primarily from client payments and interest on client funds, offset by personnel-related expenditures[158](index=158&type=chunk) - Cash used in investing activities for YTD Q2 2023 increased due to a **$254.0 million** decrease in proceeds from investments from client funds and a **$15.7 million** increase in property and equipment purchases, partially offset by a **$208.8 million** decrease in purchases of investments from client funds[159](index=159&type=chunk) - Cash used in financing activities for YTD Q2 2023 increased significantly due to a **$1,780.6 million** change related to client funds obligation, a **$29.0 million** decrease in debt proceeds, a **$21.7 million** dividend payment, and a **$6.3 million** increase in withholding taxes for share settlements[160](index=160&type=chunk) [Contractual Obligations](index=31&type=section&id=Contractual%20Obligations) - Principal commitments include long-term debt, office space leases, and the naming rights agreement[161](index=161&type=chunk) - No material changes to contractual obligations since the Form 10-K, except for the Credit Agreement Amendment discussed in Note 15[161](index=161&type=chunk) [Critical Accounting Policies and Estimates](index=31&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) - No material changes to the critical accounting policies and estimates disclosed in the Form 10-K[163](index=163&type=chunk) [Adoption of Accounting Pronouncements](index=31&type=section&id=Adoption%20of%20Accounting%20Pronouncements) - Discussion of recently adopted accounting pronouncements is provided in Note 2 of this Form 10-Q[164](index=164&type=chunk) [Non-GAAP Financial Measures](index=31&type=section&id=Non-GAAP%20Financial%20Measures) - Management uses adjusted EBITDA and non-GAAP net income as supplemental measures to assess core business performance and for planning, providing greater transparency for investors[165](index=165&type=chunk) Net Income to Adjusted EBITDA Reconciliation (in thousands) | Item | Q2 2023 | Q2 2022 | YTD Q2 2023 | YTD Q2 2022 | | :--------------------------------- | :-------- | :-------- | :---------- | :---------- | | Net income | $64,516 | $57,355 | $183,812 | $149,285 | | Interest expense | $602 | $354 | $1,439 | $569 | | Provision for income taxes | $28,331 | $15,482 | $74,634 | $51,016 | | Depreciation and amortization | $27,738 | $22,568 | $54,010 | $44,223 | | EBITDA | $121,187 | $95,759 | $313,895 | $245,093 | | Non-cash stock-based compensation expense | $35,366 | $24,268 | $63,185 | $46,323 | | Change in fair value of interest rate swap | $— | $(405) | $— | $(1,668) | | Adjusted EBITDA | $156,553 | $119,622 | $377,080 | $289,748 | Net Income to Non-GAAP Net Income Reconciliation (in thousands) | Item | Q2 2023 | Q2 2022 | YTD Q2 2023 | YTD Q2 2022 | | :--------------------------------- | :-------- | :-------- | :---------- | :---------- | | Net income | $64,516 | $57,355 | $183,812 | $149,285 | | Non-cash stock-based compensation expense | $35,366 | $24,268 | $63,185 | $46,323 | | Change in fair value of interest rate swap | $— | $(405) | $— | $(1,668) | | Income tax effect on non-GAAP adjustments | $(5,620) | $(8,224) | $(10,084) | $(10,298) | | Non-GAAP net income | $94,262 | $72,994 | $236,913 | $183,642 | Non-GAAP Net Income Per Share Reconciliation | Item | Q2 2023 Basic | Q2 2022 Basic | YTD Q2 2023 Basic | YTD Q2 2022 Basic | | :--------------------------------- | :------------ | :------------ | :---------------- | :---------------- | | Earnings per share, basic | $1.11 | $0.99 | $3.17 | $2.57 | | Non-cash stock-based compensation expense | $0.61 | $0.42 | $1.09 | $0.80 | | Change in fair value of interest rate swap | $— | $(0.01) | $— | $(0.03) | | Income tax effect on non-GAAP adjustments | $(0.09) | $(0.14) | $(0.17) | $(0.17) | | Non-GAAP net income per share, basic | $1.63 | $1.26 | $4.09 | $3.17 | | | | | | | | Item | Q2 2023 Diluted | Q2 2022 Diluted | YTD Q2 2023 Diluted | YTD Q2 2022 Diluted | | :--------------------------------- | :-------------- | :-------------- | :------------------ | :------------------ | | Earnings per share, diluted | $1.11 | $0.99 | $3.17 | $2.57 | | Non-cash stock-based compensation expense | $0.61 | $0.42 | $1.09 | $0.80 | | Change in fair value of interest rate swap | $— | $(0.01) | $— | $(0.03) | | Income tax effect on non-GAAP adjustments | $(0.10) | $(0.14) | $(0.18) | $(0.18) | | Non-GAAP net income per share, diluted | $1.62 | $1.26 | $4.08 | $3.16 | [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=32&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Assesses the company's exposure to market risks, primarily interest rate sensitivity, concluding no material impact from rate changes [Interest Rate Sensitivity](index=32&type=section&id=Interest%20Rate%20Sensitivity) - Cash and cash equivalents totaled **$536.5 million** as of June 30, 2023, primarily invested in demand deposit accounts and money market funds, with capital preservation and liquidity as primary objectives[169](index=169&type=chunk) - The company had **$29.0 million** of indebtedness outstanding under the Revolving Credit Facility, bearing interest at the Adjusted Term SOFR Rate plus **1.25%**[171](index=171&type=chunk) - An increase or decrease of **100 basis points** in interest rates would not have a material effect on the company's operating results or financial condition as of June 30, 2023[171](index=171&type=chunk) [Item 4. Controls and Procedures](index=32&type=section&id=Item%204.%20Controls%20and%20Procedures) Evaluates the effectiveness of disclosure controls and procedures, confirming their efficacy with no material changes in internal control [Evaluation of Disclosure Controls and Procedures](index=32&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) - The CEO and CFO concluded that disclosure controls and procedures were effective as of June 30, 2023, ensuring timely and accurate reporting of required information[172](index=172&type=chunk) [Changes in Internal Control over Financial Reporting](index=32&type=section&id=Changes%20in%20Internal%20Control%20over%20Financial%20Reporting) - There have been no material changes in internal control over financial reporting during the quarter ended June 30, 2023[174](index=174&type=chunk) PART II – OTHER INFORMATION [Item 1. Legal Proceedings](index=35&type=section&id=Item%201.%20Legal%20Proceedings) Details ongoing legal proceedings, with management believing their resolution will not materially impact the company's financial position - The company is involved in various legal proceedings arising in the ordinary course of business[177](index=177&type=chunk) - Management believes the resolution of current pending legal matters will not have a material adverse effect on the company's business, financial condition, results of operations, or cash flows[177](index=177&type=chunk) [Item 1A. Risk Factors](index=35&type=page&id=Item%201A.%20Risk%20Factors) Updates risk factors, highlighting increased risks from security breaches, international expansion, and the discretionary nature of dividends - Security vulnerabilities, cyberattacks, and network disruptions, including data breaches and privacy leaks, pose significant risks, potentially damaging reputation, causing client loss, and incurring substantial liabilities[179](index=179&type=chunk)[180](index=180&type=chunk)[181](index=181&type=chunk)[182](index=182&type=chunk) - Expansion into international markets subjects the business to various risks, including conflicting laws, regulatory approvals, staffing difficulties, financial risks (e.g., foreign currency fluctuations), geopolitical instability, and compliance challenges[183](index=183&type=chunk)[184](index=184&type=chunk) - The payment of dividends and their rate are solely at the discretion of the Board of Directors and are subject to financial results and statutory surplus, meaning future dividends are not guaranteed and the policy may be modified or canceled[185](index=185&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=37&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) Details common stock repurchases, primarily for tax obligations, and outlines the remaining authorization under the stock repurchase plan Common Stock Repurchases (Six Months Ended June 30, 2023) | Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs | | :------------------- | :------------------------------- | :--------------------------- | :----------------------------------------------------------------------- | :------------------------------------------------------------------------------------ | | April 1 - 30, 2023 | 10,268 | $288.92 | 10,268 | $1,096,040,000 | | May 1 - 31, 2023 | 27,386 | $272.94 | 27,386 | $1,088,565,000 | | June 1 - 30, 2023 | — | — | — | $1,088,565,000 | | **Total** | **37,654** | | **37,654** | | - The repurchased shares primarily consisted of shares withheld to satisfy tax withholding obligations for certain employees upon the vesting of restricted stock[188](index=188&type=chunk) - As of June 30, 2023, there was **$1.1 billion** available for repurchases under the stock repurchase plan, which is set to expire on August 15, 2024[147](index=147&type=chunk)[188](index=188&type=chunk) [Item 6. Exhibits](index=38&type=section&id=Item%206.%20Exhibits) Lists all exhibits filed with the Form 10-Q, including corporate governance, incentive plans, credit agreements, and certifications - The exhibits include corporate documents (e.g., Amended and Restated Certificate of Incorporation, Bylaws), incentive plans (e.g., 2023 Long-Term Incentive Plan), credit agreements (e.g., Amendment No. 1 and No. 2 to Credit Agreement), and certifications (e.g., CEO and CFO certifications pursuant to Sarbanes-Oxley Act)[190](index=190&type=chunk)[192](index=192&type=chunk) [SIGNATURES](index=41&type=section&id=SIGNATURES) Confirms the Quarterly Report on Form 10-Q was signed by the CEO and CFO on August 3, 2023 - The report was signed by Chad Richison, President and Chief Executive Officer, and Craig E. Boelte, Chief Financial Officer[198](index=198&type=chunk) - The signing date for the report was August 3, 2023[198](index=198&type=chunk) ```

Paycom Software, Inc. (NYSE:PAYC) Q2 2023 Earnings Call August 1, 2023 5:00 PM ET Company Participants James Samford - Head of Investor Relations Chad Richison - President and Chief Executive Officer Craig E. Boelte - Chief Financial Officer Conference Call Participants Raimo Lenschow - Barclays Samad Samana - Jefferies Brad Reback - Stifel Mark Marcon - Baird Joshua Reilly - Needham Steve Enders - Citi Siti Panigrahi - Mizuho Bryan Bergin - TD Cowen Bhavin Shah - Deutsche Bank Daniel Jester - BMO Robert Si ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) (Exact name of registrant as specified in its charter) Delaware 80-0957485 (State or other jurisdiction of incorporation or organization) 7501 W. Memorial Road Oklahoma City, Oklahoma 73142 (Address of principal executive offices) (Zip Code) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2023 ☐ TRANSITION REPORT PURSUANT TO SECTION ...

Financial Data and Key Metrics - Q1 2023 revenue was $451.6 million, up 27.8% YoY [26] - Non-GAAP net income for Q1 2023 was $142.7 million, or $2.46 per diluted share, up 28.9% YoY [27] - Recurring revenue was $444.4 million, representing 98.4% of total revenue, growing 27.6% YoY [27] - Adjusted EBITDA for Q1 2023 was $220.5 million, or 48.8% of total revenue, compared to $170.1 million in Q1 2022 [42] - Cash and cash equivalents stood at $506 million, with total debt of $29 million [29] - Cash from operations increased by 24.6% to $146.1 million in Q1 2023 [29] - Average daily balance of client funds was $2.4 billion, up 10% YoY [29] Business Line Performance - BETI (Employee Self-Service Payroll) continues to drive strong client additions and is a key differentiator in the market [24] - Large organizations benefit from the single database solution, with 5% of the TAM currently addressed [25] - Global HCM product has expanded the TAM by 50%, with plans to roll out BETI internationally [25][50] Market Performance - The company is experiencing rapid growth at the upper end of its target market range [25] - Global HCM product is now available in 180 countries and 15 languages, targeting multinational clients [50][51] Company Strategy and Industry Competition - The company is focused on expanding its global footprint, with plans to build native payroll solutions in key international markets [50][51] - BETI is being developed for international markets, with 16-20 countries representing over 80% of the opportunity being prioritized [119] - The company is investing in R&D, with adjusted R&D costs of $55.2 million in Q1 2023, up from $42.9 million in the prior year [28] - The company is also investing in marketing, with adjusted sales and marketing expenses of $98.1 million in Q1 2023 [43] Management Commentary on Operating Environment and Future Outlook - Management is optimistic about the company's ability to continue delivering rapid organic revenue growth, high profit margins, and attractive cash flows [47] - The company is well-positioned to exceed its initial outlook for a solid Rule of 65 [39] - Management highlighted the strong demand for HCM solutions and the accelerating industry transformation to more efficient payroll processes [24] Other Important Information - The company announced a quarterly dividend program, with an annual rate of $1.50 per share, reflecting confidence in long-term growth opportunities [31][47] - The company has a $1.1 billion buyback authorization still in place, having returned nearly $600 million to stockholders through buybacks since 2016 [31] Q&A Session Summary Question: Global Initiative and Strategy - The company is expanding its global presence, with Global HCM now available in 180 countries and 15 languages [50][51] - BETI will be rolled out internationally, requiring operations in certain countries to process payroll [51] Question: M&A and Capital Allocation - The company is open to acquisitions, particularly for building out the payroll side internationally [53] - The dividend and buyback strategy will be balanced, with $1.1 billion still available for buybacks [131] Question: Sales and Marketing Expenses - Sales and marketing expenses increased significantly in Q1 2023 due to aggressive marketing campaigns and headcount additions [54][74] Question: Economic Outlook and Hiring - The company is seeing easier hiring conditions, especially for technical talent, compared to a tighter labor market a year ago [75] Question: Retention and Client Base - Retention rates remain strong, particularly for clients using BETI, with a retention rate better than 99% for BETI users [93] Question: Global HCM Impact on Margins - Global HCM is expected to have a similar margin profile to current clients, with some R&D costs associated with its development [64] Question: BETI Rollout and International Expansion - BETI will be rolled out in 16-20 key countries first, representing over 80% of the opportunity [119] - The company is building native payroll solutions in these countries, rather than relying on existing payroll systems [86] Question: Competitive Dynamics and Win Rates - The company is seeing strong win rates against legacy players, particularly with the value proposition of BETI [97] Question: Free Cash Flow and BETI Penetration - Free cash flow was strong in Q1 2023, with BETI penetration expected to drive further efficiency gains [171] Question: Tax Forms and Revenue Growth - Tax forms revenue is growing at a slower rate compared to other revenue streams, becoming a smaller portion of overall revenue [153] Question: Global HCM Adoption and Feedback - Some clients are already piloting Global HCM, with more expected to adopt it throughout the year [160] Question: Dividend Policy - The dividend is currently set at $1.50 annually, with potential adjustments in the future based on performance [174]

Part I [Business](index=6&type=section&id=Item%201.%20Business) Paycom delivers a comprehensive, cloud-based Human Capital Management (HCM) solution on a single database, serving approximately 36,600 clients with high retention and pursuing strategic market expansion - Paycom offers a comprehensive, cloud-based HCM solution on a single database platform, covering the entire employment lifecycle from recruitment to retirement[20](index=20&type=chunk)[22](index=22&type=chunk) Client and Retention Metrics (as of Dec 31, 2022) | Metric | Value | | :--- | :--- | | Client Count | ~36,600 | | Revenue from any single client | < 0.5% | | 2022 Annual Revenue Retention Rate | 93% | | 2021 Annual Revenue Retention Rate | 94% | | 2020 Annual Revenue Retention Rate | 93% | - The company's growth strategy includes increasing its presence in existing markets by adding sales teams, expanding into new metropolitan areas, enlarging relationships with existing clients, and targeting larger businesses[36](index=36&type=chunk)[37](index=37&type=chunk)[38](index=38&type=chunk) - As of December 31, 2022, Paycom employed **6,349** people, with females comprising **51.2%** of all employees and **36.7%** of executive/senior-level managers[114](index=114&type=chunk)[116](index=116&type=chunk)[117](index=117&type=chunk) - Revenues are seasonal, with the first quarter being higher due to annual payroll tax and ACA form filings, and the fourth quarter being higher due to unscheduled payroll runs like bonuses[112](index=112&type=chunk)[113](index=113&type=chunk) [Risk Factors](index=19&type=section&id=Item%201A.%20Risk%20Factors) The company faces material risks including data security breaches, infrastructure disruptions, intense market competition, technological obsolescence, and evolving regulatory compliance challenges - Business risks include security vulnerabilities and cyber attacks, as the solution stores sensitive client and employee data; a breach could damage reputation, lead to client loss, and result in significant liabilities[124](index=124&type=chunk)[128](index=128&type=chunk) - The HCM market is highly competitive, with rivals like Automatic Data Processing, Inc., Ceridian HCM Holding, Inc., Oracle Corporation, Workday, Inc., and others who may have greater resources and brand recognition[134](index=134&type=chunk)[136](index=136&type=chunk) - The company's success depends on its ability to innovate and adapt to technological developments, including disruptive technologies like AI and machine learning; failure to do so could render its applications obsolete[131](index=131&type=chunk)[133](index=133&type=chunk) - Changes in laws and regulations, such as the potential modification or repeal of the Affordable Care Act (ACA), could adversely affect business; ACA-related services are estimated to represent approximately **2%** of total projected revenues for 2023[161](index=161&type=chunk)[162](index=162&type=chunk) - Failure to comply with complex and evolving data privacy laws (e.g., CCPA, CPRA, GDPR) could result in regulatory scrutiny, fines, and reputational harm[165](index=165&type=chunk)[166](index=166&type=chunk)[167](index=167&type=chunk) - Adverse economic conditions, such as increased unemployment or reduced business spending, could lead to client losses, reduced headcount-based fees, and longer sales cycles, negatively impacting financial results[202](index=202&type=chunk) [Unresolved Staff Comments](index=32&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports no unresolved staff comments from the SEC - None[205](index=205&type=chunk) [Properties](index=32&type=section&id=Item%202.%20Properties) Paycom's headquarters in Oklahoma City is expanding, complemented by an operations facility in Texas and leased sales offices across 28 states, housing three redundant data centers - The corporate headquarters in Oklahoma City is an approximately **500,000-square-foot** campus on over **150 acres** of Company-owned property[206](index=206&type=chunk) - A new **315,000-square-foot** building is under construction at the Oklahoma City headquarters[206](index=206&type=chunk) - The company owns an operations facility in Grapevine, Texas and operates three fully redundant data centers across its Oklahoma City and Grapevine locations[206](index=206&type=chunk) [Legal Proceedings](index=32&type=section&id=Item%203.%20Legal%20Proceedings) The company is involved in ordinary course legal proceedings, which management expects will not materially impact its financial condition or operations - Paycom is involved in various legal proceedings in the ordinary course of business but does not expect them to have a material adverse effect on its financials[208](index=208&type=chunk) [Mine Safety Disclosures](index=32&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - None[209](index=209&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=33&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Paycom's common stock trades on the NYSE, with no cash dividends paid to date, and an active **$1.1 billion** stock repurchase plan extended through August 2024 - The company's common stock is traded on the New York Stock Exchange (NYSE) under the symbol "PAYC"[211](index=211&type=chunk) - Paycom has not paid any cash dividends on its common stock as of the filing of this report[212](index=212&type=chunk) - In August 2022, the Board of Directors increased the availability under the stock repurchase plan to **$1.1 billion** and extended the expiration date to August 15, 2024[216](index=216&type=chunk) Share Repurchases in Q4 2022 | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | Oct 1 - 31, 2022 | 25 | $329.14 | | Nov 1 - 30, 2022 | 442 | $329.75 | | Dec 1 - 31, 2022 | 0 | $— | | **Total** | **467** | **N/A** | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=35&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) In FY2022, Paycom achieved **30.3%** revenue growth to **$1.375 billion** and **43.6%** net income growth to **$281.4 million**, supported by strong liquidity and strategic investments in sales and product innovation Key Performance Indicators (2020-2022) | Metric | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Clients | 36,561 | 33,875 | 30,994 | | Sales teams | 55 | 51 | 50 | | Annual revenue retention rate | 93% | 94% | 93% | Consolidated Results of Operations (FY 2022 vs. FY 2021) | Metric | 2022 (in millions) | 2021 (in millions) | % Change | | :--- | :--- | :--- | :--- | | Total Revenues | $1,375.2 | $1,055.5 | 30.3% | | Operating Income | $378.7 | $253.6 | 49.3% | | Net Income | $281.4 | $196.0 | 43.6% | - The **30.3%** increase in total revenues was primarily driven by the addition of new clients, efficiency gains in mature sales offices, and the sale of additional applications to existing clients[244](index=244&type=chunk) - The company's principal sources of liquidity are operating cash flow (**$365.1 million** in 2022) and a **$650.0 million** senior secured revolving credit facility established in July 2022[257](index=257&type=chunk)[277](index=277&type=chunk) Reconciliation of Net Income to Adjusted EBITDA | Metric | 2022 (in millions) | 2021 (in millions) | | :--- | :--- | :--- | | Net income | $281.4 | $196.0 | | Interest expense | $2.5 | $— | | Provision for income taxes | $108.2 | $60.0 | | Depreciation and amortization | $92.7 | $67.2 | | Non-cash stock-based compensation | $94.9 | $97.5 | | **Adjusted EBITDA** | **$579.7** | **$419.3** | [Quantitative and Qualitative Disclosures About Market Risk](index=48&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk is interest rate sensitivity on its **$400.7 million** cash and equivalents and **$29.0 million** variable-rate debt, with a 100-basis-point change deemed immaterial - The company's main market risk is interest rate sensitivity on its cash equivalents and variable-rate debt[301](index=301&type=chunk)[303](index=303&type=chunk) - As of December 31, 2022, the company had **$400.7 million** in cash and cash equivalents and **$29.0 million** of outstanding debt under a variable-rate revolving credit facility[301](index=301&type=chunk)[303](index=303&type=chunk) - A hypothetical **100 basis point** increase or decrease in interest rates would not have a material effect on the company's operating results or financial condition[303](index=303&type=chunk) [Financial Statements and Supplementary Data](index=49&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents the company's audited consolidated financial statements for FY2020-2022, including balance sheets, income statements, cash flows, and detailed notes, along with the independent auditor's report [Consolidated Balance Sheets](index=52&type=section&id=Consolidated%20Balance%20Sheets) As of December 31, 2022, total assets reached **$3.90 billion** (up from **$3.22 billion** in 2021), driven by client funds and cash, with total liabilities at **$2.72 billion** and equity at **$1.18 billion** Consolidated Balance Sheet Highlights (as of Dec 31) | Account (in millions) | 2022 (in millions) | 2021 (in millions) | | :--- | :--- | :--- | | **Total Assets** | **$3,902.5** | **$3,215.1** | | Cash and cash equivalents | $400.7 | $278.0 | | Funds held for clients | $2,203.0 | $1,846.6 | | **Total Liabilities** | **$2,719.9** | **$2,321.4** | | Client funds obligation | $2,207.7 | $1,846.6 | | **Total Stockholders' Equity** | **$1,182.6** | **$893.7** | [Consolidated Statements of Comprehensive Income](index=53&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income) For FY2022, total revenues grew **30.3%** to **$1.375 billion**, operating income reached **$378.7 million**, and net income increased to **$281.4 million**, or **$4.84** per diluted share Consolidated Income Statement Highlights (Year Ended Dec 31) | Account (in millions) | 2022 (in millions) | 2021 (in millions) | 2020 (in millions) | | :--- | :--- | :--- | :--- | | Total Revenues | $1,375.2 | $1,055.5 | $841.4 | | Operating Income | $378.7 | $253.6 | $186.1 | | Net Income | $281.4 | $196.0 | $143.5 | | Diluted EPS | $4.84 | $3.37 | $2.46 | [Consolidated Statements of Cash Flows](index=55&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) In FY2022, operating cash flow increased to **$365.1 million**, investing cash outflow significantly decreased to **$23.3 million**, and financing cash inflow was **$254.6 million**, driven by client funds and stock repurchases Consolidated Cash Flow Highlights (Year Ended Dec 31) | Activity (in millions) | 2022 (in millions) | 2021 (in millions) | | :--- | :--- | :--- | | Net cash provided by operating activities | $365.1 | $319.4 | | Net cash used in investing activities | ($23.3) | ($257.7) | | Net cash provided by financing activities | $254.6 | $165.7 | [Notes to the Consolidated Financial Statements](index=57&type=section&id=Notes%20to%20the%20Consolidated%20Financial%20Statements) The notes detail significant accounting policies, including revenue recognition and debt structure with new **$650 million** and **$750 million** credit facilities, alongside information on leases, goodwill, stock-based compensation, and income taxes - Nonrefundable upfront implementation fees are deferred and recognized ratably over the estimated **ten-year** client life, as they represent a material right for the client to renew[363](index=363&type=chunk) - In July 2022, the company entered into a new credit agreement providing for a **$650 million** revolving credit facility and a **$750 million** delayed draw term loan facility, both maturing in July 2027[400](index=400&type=chunk) - The company issues time-based, market-based, and performance-based restricted stock and stock units; as of December 31, 2022, there was **$217.4 million** of unrecognized compensation cost for restricted stock awards and **$13.2 million** for restricted stock units[427](index=427&type=chunk)[435](index=435&type=chunk)[440](index=440&type=chunk) - The effective income tax rate for 2022 was **28%**, up from **23%** in 2021, primarily due to a decrease in excess tax benefits from vested stock awards[445](index=445&type=chunk)[447](index=447&type=chunk) [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=75&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The company reports no changes or disagreements with its accountants regarding accounting and financial disclosure - None[453](index=453&type=chunk) [Controls and Procedures](index=75&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2022, a finding affirmed by Grant Thornton LLP, with no material changes reported - Management, with the participation of the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of December 31, 2022[455](index=455&type=chunk) - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2022, based on the COSO framework[456](index=456&type=chunk) - The independent registered public accounting firm, Grant Thornton LLP, audited and issued an unqualified opinion on the effectiveness of the company's internal control over financial reporting[457](index=457&type=chunk)[463](index=463&type=chunk) [Other Information](index=75&type=section&id=Item%209B.%20Other%20Information) The company reports no other information for this item - None[459](index=459&type=chunk) Part III [Directors, Executive Officers and Corporate Governance](index=77&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information for this item is incorporated by reference from the company's 2023 Definitive Proxy Statement - Information is incorporated by reference from the company's Definitive Proxy Statement[469](index=469&type=chunk) [Executive Compensation](index=77&type=section&id=Item%2011.%20Executive%20Compensation) Information for this item is incorporated by reference from the company's 2023 Definitive Proxy Statement - Information is incorporated by reference from the company's Definitive Proxy Statement[470](index=470&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=77&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Information for this item is incorporated by reference from the company's 2023 Definitive Proxy Statement - Information is incorporated by reference from the company's Definitive Proxy Statement[471](index=471&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=77&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information for this item is incorporated by reference from the company's 2023 Definitive Proxy Statement - Information is incorporated by reference from the company's Definitive Proxy Statement[472](index=472&type=chunk) [Principal Accounting Fees and Services](index=77&type=section&id=Item%2014.%20Principal%20Accounting%20Fees%20and%20Services) Information for this item is incorporated by reference from the company's 2023 Definitive Proxy Statement - Information is incorporated by reference from the company's Definitive Proxy Statement[473](index=473&type=chunk) Part IV [Exhibits, Financial Statement Schedules](index=78&type=section&id=Item%2015.%20Exhibits%2C%20Financial%20Statement%20Schedules) This section lists the financial statements, schedules, and exhibits filed with the Form 10-K, noting the omission of schedules where information is inapplicable or included elsewhere - This section contains the list of financial statements and exhibits filed with the Form 10-K[474](index=474&type=chunk) - Financial statement schedules have been omitted because the required information is either inapplicable or included in the consolidated financial statements and notes[474](index=474&type=chunk) [Form 10-K Summary](index=82&type=section&id=Item%2016.%20Form%2010-K%20Summary) This item is not applicable - Not applicable[485](index=485&type=chunk)