Paycom Software(PAYC) - 2025 Q2 - Quarterly Report

PART I – FINANCIAL INFORMATION Item 1. Financial Statements Unaudited consolidated financial statements (balance sheets, income, equity, cash flows) and detailed accounting notes Unaudited Consolidated Balance Sheets Consolidated Balance Sheet Highlights (in millions) | Metric | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :------------ | :------------------ | | Total assets | $4,031.2 | $5,859.9 | | Total liabilities | $2,229.3 | $4,284.0 | | Total stockholders' equity | $1,801.9 | $1,575.9 | | Funds held for clients | $1,616.9 | $3,665.5 | | Client funds obligation | $1,616.9 | $3,665.7 | - Total assets decreased from $5,859.9 million at December 31, 2024, to $4,031.2 million at June 30, 2025, primarily driven by a significant reduction in funds held for clients[9] Unaudited Consolidated Statements of Comprehensive Income Consolidated Statements of Comprehensive Income Highlights (in millions, except per share) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total revenues | $483.6 | $437.5 | $1,014.1 | $937.4 | | Operating income | $112.3 | $95.1 | $297.5 | $381.0 | | Net income | $89.5 | $68.0 | $228.9 | $315.2 | | Earnings per share, diluted | $1.58 | $1.20 | $4.06 | $5.57 | - Net income increased by 31.6% for the three months ended June 30, 2025, but decreased by 27.4% for the six months ended June 30, 2025, due to a prior year stock-based compensation reversal[11] Unaudited Consolidated Statements of Stockholders' Equity Changes in Stockholders' Equity (in millions) | Item | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------- | :----------------------------- | :----------------------------- | | Net income | $228.9 | $315.2 | | Stock-based compensation | $77.1 | $(57.2) | | Dividends declared | $(43.0) | $(41.6) | | Repurchases of common stock | $(37.7) | $(93.6) | | Total stockholders' equity (end of period) | $1,801.9 | $1,426.5 | - Stockholders' equity increased from $1,575.9 million to $1,801.9 million, driven by net income and stock-based compensation, partially offset by dividends and stock repurchases[9][14] Unaudited Consolidated Statements of Cash Flows Consolidated Statements of Cash Flows Highlights (in millions) | Cash Flow Activity | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :---------------------------------------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $305.0 | $280.7 | | Net cash (used in) provided by investing activities | $(565.2) | $71.7 | | Net cash used in financing activities | $(2,129.5) | $(160.4) | | (Decrease) increase in cash, cash equivalents, restricted cash and restricted cash equivalents | $(2,389.7) | $192.0 | | Cash, cash equivalents, restricted cash and restricted cash equivalents, end of period | $1,653.1 | $2,614.7 | - Cash used in investing activities significantly increased to $(565.2) million from $71.7 million, primarily due to increased purchases of investments from client funds[16][159] - Cash used in financing activities dramatically increased to $(2,129.5) million from $(160.4) million, mainly due to a large change in client funds obligation[16][160] Notes to the Unaudited Consolidated Financial Statements Note 1. Organization and Description of Business Paycom Software, Inc. provides a comprehensive, cloud-based human capital management (HCM) solution as SaaS - Paycom is a leading provider of a comprehensive, cloud-based human capital management (HCM) solution delivered as Software-as-a-Service (SaaS)[21] - The solution manages the complete employment lifecycle, from recruitment to retirement, using a single database for all HCM functions[22] Note 2. Summary of Significant Accounting Policies Outlines key accounting policies, including consolidation of Paycom National Trust Bank, revenue presentation changes, and segment reporting adoption - The company consolidated Paycom National Trust Bank, its wholly owned subsidiary, which now holds substantially all client payroll and related funds, effective 2024[25] - Revenue presentation changed in 2024 to disaggregate interest on funds held for clients and combine recurring and other revenues, with prior periods reclassified[26] - The company adopted ASU 2023-07 (Segment Reporting) retrospectively on December 31, 2024, expanding disclosure requirements for reportable segment expenses[28] - Revenues are seasonal, with higher recurring revenues expected in the first and fourth quarters due to payroll tax filings and unscheduled payroll runs (bonuses)[32] - The company operates in a single operating and reporting segment, with the CEO assessing performance at the consolidated level[33] - As of June 30, 2025, $1.44 billion remained available for repurchases under the stock repurchase plan, which expires on August 15, 2026[38] Note 3. Revenue Recognition Details the company's revenue recognition policies, including recurring revenues, implementation fees, and deferred revenue balances - Substantially all revenues are derived from contracts with clients, recognized when control of goods or services is transferred[43] - Recurring revenues come from various HCM applications, with performance obligations generally satisfied over time during each client's payroll period[44][45] - Nonrefundable implementation fees are deferred and recognized ratably over a 10-year estimated client life, representing a material right for renewal[49] Deferred Revenue Balances (in millions) | Period | Balance, beginning of period | Recognition of revenue | Contract balance, net | Balance, end of period | | :-------------------------- | :--------------------------- | :--------------------- | :-------------------- | :------------------- | | Three Months Ended June 30, 2025 | $148.7 | $(12.0) | $13.0 | $149.7 | | Three Months Ended June 30, 2024 | $137.0 | $(10.3) | $15.6 | $142.4 | | Six Months Ended June 30, 2025 | $144.6 | $(21.4) | $26.5 | $149.7 | | Six Months Ended June 30, 2024 | $130.5 | $(16.0) | $27.9 | $142.4 | - The company capitalizes incremental costs of obtaining and fulfilling contracts, amortizing them over the estimated 10-year client relationship life[53] Note 4. Property and Equipment Provides a breakdown of property and equipment, net, including capitalized software development costs and depreciation expenses Property and Equipment, Net (in millions) | Category | June 30, 2025 | December 31, 2024 | | :------------------------------------------ | :------------ | :------------------ | | Software and capitalized software development costs | $567.5 | $497.2 | | Buildings | $279.1 | $275.6 | | Computer equipment | $241.1 | $203.2 | |