Paycor HCM(PYCR) - 2025 Q2 - Quarterly Results

Second Quarter Fiscal Year 2025 Overview Paycor's second quarter of fiscal year 2025 saw significant financial growth and a pending acquisition by Paychex, Inc 2.1 Key Financial Highlights (Q2 FY2025) Paycor achieved significant financial growth and improved profitability in Q2 FY2025, with double-digit increases in total and recurring revenue, substantial rises in operating income and adjusted operating income, a significant reduction in net loss, and strong adjusted free cash flow growth Key Financial Data for Q2 FY2025 | Adjusted Free Cash Flow* (USD in millions) | Q2 FY2025 | Q2 FY2024 | % Change | | :--------------------------------------- | :-------- | :-------- | :------- | | Adjusted Free Cash Flow* | 28.5 | 14.8 | 92.6% | 2.2 Pending Merger with Paychex, Inc. Paycor announced a definitive agreement to be acquired by Paychex, Inc. in an all-cash transaction valued at approximately $4.1 billion or $22.50 per share, with the transaction unanimously approved by the board and majority shareholders, expected to close in H1 2025, after which Paycor will become a wholly-owned subsidiary of Paychex and delist from Nasdaq; consequently, the company has suspended FY2025 financial guidance and canceled its earnings call - Paycor has agreed to be acquired by Paychex, Inc. in an all-cash transaction valued at approximately $4.1 billion, or $22.50 per share[4] - The per-share merger consideration represents a premium of approximately 19% over the 30-day volume-weighted average trading price as of January 3, 2025, the unaffected trading day[4] - The merger agreement has been unanimously approved by the company's board of directors and a majority of outstanding common stock shareholders, with completion expected in the first half of calendar year 2025[4] - Due to the pending transaction, the company will not hold an earnings conference call, has suspended its FY2025 financial guidance, and will not provide Q3 2025 financial guidance[5] Company Information & Disclosures This section provides essential information about Paycor, including its business model, forward-looking statements, and explanations of non-GAAP financial measures 3.1 About Paycor Paycor is a leading Human Capital Management (HCM) software provider, offering HR, payroll, and talent platforms designed to connect leaders with employees, data, and expertise, providing tools to enhance employee engagement and retention, and delivering a unified HCM experience for business outcomes - Paycor offers HR, payroll, and talent platforms that connect leaders with employees, data, and expertise[10] - The company provides tools to help leaders coach, develop, and retain employees, thereby increasing engagement and retention[10] - Paycor delivers a unified HCM experience that seamlessly connects with other mission-critical technologies, offering unprecedented insights into operational data[10] 3.2 Forward-Looking Statements This press release contains forward-looking statements regarding the company's future operating results, financial condition, business outlook, strategic plans, and objectives, which are subject to various risks, uncertainties, and assumptions, including those related to the Paychex merger, such as failure to complete the transaction, termination of the agreement, potential litigation, business restrictions, and operational risks like cybersecurity, sales team performance, customer satisfaction, AI development, and macroeconomic conditions - Forward-looking statements cover future operating results, financial condition, business outlook, strategies, and plans, identified by words such as "anticipate," "estimate," and "expect"[11] - Key risks include the merger not being completed in a timely manner or at all, termination of the merger agreement, potential litigation, business restrictions during the merger period, and failure to realize the anticipated benefits of the merger[12] - Other risks include effectively managing growth, data security breaches, sales team expansion and retention, customer satisfaction, payment timing, future acquisitions, retention of key executives, product innovation, AI development, talent attraction and retention, software operations, and macroeconomic conditions[12] 3.3 Explanation of Non-GAAP Financial Measures To supplement GAAP financial information, Paycor provides non-GAAP financial measures such as adjusted gross profit, adjusted operating income, adjusted net income, and adjusted free cash flow, which management believes are useful for evaluating core operating performance and trends, and for providing consistency with historical performance and comparisons to peer companies; the company defines each non-GAAP measure and emphasizes they are not GAAP substitutes and may not be comparable - The company provides non-GAAP financial measures including adjusted gross profit, operating income, sales and marketing expenses, general and administrative expenses, research and development expenses, net income, net income per share, free cash flow, and their respective margins[13] - Management believes these non-GAAP measures are useful for evaluating core operating performance and trends, developing budgets and operating plans, and providing consistency with historical performance and comparisons to peer companies[13] - Non-GAAP financial measures are not measures of GAAP financial performance, should not be considered as substitutes, and may not be comparable to similar measures used by other companies[15] Condensed Consolidated Financial Statements This section presents Paycor's condensed consolidated financial statements, including the balance sheets, statements of operations, and cash flows, highlighting key financial positions and performance over the reporting periods 4.1 Condensed Consolidated Balance Sheets As of December 31, 2024, Paycor's total assets were $2,830,202 thousand, an increase from June 30, 2024, driven by a significant rise in funds held for clients, which contributed to growth in total current assets; total liabilities and stockholders' equity also increased accordingly Key Data from Condensed Consolidated Balance Sheets (USD in thousands) | Item | December 31, 2024 | June 30, 2024 | Change | | :----------------------- | :---------------- | :------------ | :------- | | Total Stockholders' Equity | 1,309,018 | 1,286,926 | +22,092 | 4.2 Condensed Consolidated Statements of Operations For the three and six months ended December 31, 2024, Paycor achieved significant growth in both total and recurring revenue, successfully transitioning from an operating loss to an operating income and substantially reducing its net loss, demonstrating a notable improvement in profitability Key Data from Condensed Consolidated Statements of Operations (USD in thousands) | Item | Three Months Ended Dec 31, 2024 | Three Months Ended Dec 31, 2023 | % Change / Improvement | Six Months Ended Dec 31, 2024 | Six Months Ended Dec 31, 2023 | % Change / Improvement | | :--------------------------------- | :------------------------------ | :------------------------------ | :--------------------- | :---------------------------- | :---------------------------- | :--------------------- | | Basic and Diluted Net Loss Per Share | (0.01) | (0.15) | 93.3% Improvement | (0.05) | (0.26) | 80.8% Improvement | 4.3 Condensed Consolidated Statements of Cash Flows For the six months ended December 31, 2024, Paycor's cash flow from operating activities significantly improved from $37 thousand in the prior-year period to $28,749 thousand, while cash outflows from investing activities decreased, and financing activities remained strong, primarily driven by net changes in client fund obligations; total cash and cash equivalents and funds held for clients at period-end increased Key Data from Condensed Consolidated Statements of Cash Flows (USD in thousands) | Item | Six Months Ended Dec 31, 2024 | Six Months Ended Dec 31, 2023 | Change | | :------------------------------------------------------------------------ | :---------------------------- | :---------------------------- | :------- | | Cash, Cash Equivalents, Restricted Cash and Short-Term Investments, and Funds Held for Clients, End of Period | 1,122,970 | 1,067,729 | +55,241 | Reconciliations of Non-GAAP Measures This section provides detailed reconciliations of Paycor's non-GAAP financial measures to their most directly comparable GAAP counterparts, including adjusted gross profit, operating income, operating expenses, net income, and free cash flow 5.1 Adjusted Gross Profit and Margin Paycor's adjusted gross profit increased for both Q2 FY2025 and the six-month period, reflecting core profitability after excluding non-cash items like amortization of intangible assets and stock-based compensation expense; despite a slight decrease, the adjusted gross margin remained at a high level Adjusted Gross Profit and Margin (USD in thousands) | Item | Three Months Ended Dec 31, 2024 | Three Months Ended Dec 31, 2023 | Change | Six Months Ended Dec 31, 2024 | Six Months Ended Dec 31, 2023 | Change | | :---------------------- | :------------------------------ | :------------------------------ | :------- | :---------------------------- | :---------------------------- | :------- | | Adjusted Gross Margin | 67.1% | 67.4% | -0.3 pp | 66.6% | 66.8% | -0.2 pp | 5.2 Adjusted Operating Income and Margin Paycor's adjusted operating income significantly increased for both Q2 FY2025 and the six-month period, with a notable improvement in adjusted operating margin, primarily due to the exclusion of non-recurring or non-cash items such as amortization of intangible assets, stock-based compensation expense, lease exit costs, and professional fees related to the Paychex merger Adjusted Operating Income and Margin (USD in thousands) | Item | Three Months Ended Dec 31, 2024 | Three Months Ended Dec 31, 2023 | Change | Six Months Ended Dec 31, 2024 | Six Months Ended Dec 31, 2023 | Change | | :------------------------ | :------------------------------ | :------------------------------ | :------- | :---------------------------- | :---------------------------- | :------- | | Adjusted Operating Margin | 17.6% | 14.6% | +3.0 pp | 15.7% | 12.9% | +2.8 pp | - Adjustments for the three and six months ended December 31, 2024, include $1.7 million in professional fees related to the Paychex merger, as well as professional, consulting, and other fees related to strategic initiatives[29] 5.3 Adjusted Operating Expenses Paycor's adjusted sales and marketing, general and administrative, and research and development expenses varied for both Q2 FY2025 and the six-month period, with adjusted general and administrative expenses notably decreasing due to the exclusion of amortization of intangible assets, stock-based compensation expense, and corporate adjustments Adjusted Operating Expenses (USD in thousands) | Item | Three Months Ended Dec 31, 2024 | Three Months Ended Dec 31, 2023 | % Change | Six Months Ended Dec 31, 2024 | Six Months Ended Dec 31, 2023 | % Change | | :---------------------------------- | :------------------------------ | :------------------------------ | :------- | :---------------------------- | :---------------------------- | :------- | | Adjusted Research and Development Expenses | 15,563 | 13,195 | +17.9% | 30,799 | 25,320 | +21.6% | - Corporate adjustments include professional fees related to the Paychex merger and professional, consulting, and other fees related to strategic initiatives[31] 5.4 Adjusted Net Income and Adjusted Net Income Per Share Paycor's adjusted net income and adjusted net income per share significantly increased for both Q2 FY2025 and the six-month period, benefiting from the exclusion of non-GAAP adjustments such as amortization of intangible assets, stock-based compensation expense, gain/loss on lease exit, and professional fees related to the Paychex merger, along with the application of an adjusted effective income tax rate Adjusted Net Income and Adjusted Net Income Per Share (USD in thousands) | Item | Three Months Ended Dec 31, 2024 | Three Months Ended Dec 31, 2023 | % Change | Six Months Ended Dec 31, 2024 | Six Months Ended Dec 31, 2023 | % Change | | :------------------------ | :------------------------------ | :------------------------------ | :------- | :---------------------------- | :---------------------------- | :------- | | Adjusted Shares Outstanding | 180,681,049 | 177,740,047 | +1.7% | 179,772,462 | 177,537,308 | +1.3% | - The tax impact of non-GAAP adjusted pre-tax income is calculated using an adjusted effective income tax rate of 23.0%[34] - Adjusted shares outstanding are based on the if-converted method and include potentially dilutive securities excluded from GAAP diluted net income per share calculations[35] 5.5 Adjusted Free Cash Flow and Free Cash Flow Margin Paycor's adjusted free cash flow significantly increased in Q2 FY2025 from $14.8 million to $28.5 million, with a notable improvement in adjusted free cash flow margin; for the six-month period, adjusted free cash flow also turned positive from negative, indicating a substantial improvement in the company's cash generation capability Adjusted Free Cash Flow and Free Cash Flow Margin (USD in thousands) | Item | Three Months Ended Dec 31, 2024 | Three Months Ended Dec 31, 2023 | Change | Six Months Ended Dec 31, 2024 | Six Months Ended Dec 31, 2023 | Change | | :------------------------------ | :------------------------------ | :------------------------------ | :------- | :---------------------------- | :---------------------------- | :------- | | Adjusted Free Cash Flow Margin | 15.8% | 9.3% | +6.5 pp | 1.8% | (8.3)% | +10.1 pp | - Corporate adjustments include contingent consideration and professional, consulting, and other fees related to strategic initiatives[39] Contact Information This section provides contact details for Paycor's investor relations and media relations departments 6.1 Investor and Media Relations This section provides contact information for Paycor's investor relations and media relations, including contact names, phone numbers, and email addresses - Investor Relations contact: Rachel White, Phone: 513-954-7388, Email: IR@paycor.com[16] - Media Relations contact: Carly Pennekamp, Phone: 513-954-7282, Email: PR@paycor.com[16]