Paycor HCM(PYCR) - 2022 Q1 - Quarterly Report

Part I - FINANCIAL INFORMATION This section provides Paycor HCM, Inc.'s unaudited financial statements, management's analysis, market risk disclosures, and internal control evaluations Item 1. Financial Statements This section presents Paycor HCM, Inc.'s unaudited condensed consolidated financial statements, reflecting significant changes post-IPO, including increased cash and higher net loss due to operating expenses Unaudited Condensed Consolidated Balance Sheets The balance sheet reflects substantial changes post-IPO, including a significant increase in cash, elimination of long-term debt, and growth in total assets and stockholders' equity Condensed Consolidated Balance Sheet Highlights (as of Sep 30, 2021 vs. June 30, 2021) | Balance Sheet Item | Sep 30, 2021 USD (in thousands) | June 30, 2021 USD (in thousands) | Change | | :--- | :--- | :--- | :--- | | Assets | | | | | Cash and cash equivalents | $125,787 | $2,634 | +$123,153 | | Funds held for clients | $1,578,052 | $670,315 | +$907,737 | | Total assets | $3,025,365 | $2,010,953 | +$1,014,412 | | Liabilities & Equity | | | | | Client fund obligations | $1,577,642 | $669,960 | +$907,682 | | Long-term debt, net | $0 | $49,100 | -$49,100 | | Redeemable noncontrolling interest | $0 | $248,423 | -$248,423 | | Total stockholders' equity | $1,300,717 | $878,639 | +$422,078 | - Significant changes on the balance sheet are driven by the July 2021 IPO. Cash increased substantially from proceeds, long-term debt was eliminated, and redeemable noncontrolling interest was redeemed. Total assets and stockholders' equity grew significantly[10][24] Unaudited Condensed Consolidated Statements of Operations The statement of operations shows revenue growth but a significantly widened net loss due to increased operating expenses, particularly sales and marketing costs Statement of Operations Summary (Three Months Ended Sep 30) | Metric | 2021 USD (in thousands) | 2020 USD (in thousands) | YoY Change | | :--- | :--- | :--- | :--- | | Total revenues | $92,732 | $79,061 | +17.3% | | Gross profit | $47,121 | $44,577 | +5.7% | | Sales and marketing | $45,788 | $24,343 | +88.1% | | General and administrative | $43,411 | $33,417 | +29.9% | | Loss from operations | ($52,269) | ($21,467) | +143.5% | | Net loss | ($42,036) | ($17,332) | +142.5% | | Net loss attributable to Paycor HCM, Inc. | ($53,657) | ($22,382) | +139.7% | | Basic and diluted net loss per share | ($0.32) | ($0.15) | +113.3% | - Revenue grew 17.3% year-over-year, but a significant increase in operating expenses, particularly an 88% rise in Sales and Marketing costs, led to a 143.5% increase in loss from operations and a 142.5% increase in net loss[12] Unaudited Condensed Consolidated Statements of Cash Flows Cash flows reflect a substantial inflow from financing activities, primarily IPO proceeds, with a portion used for preferred stock redemption Cash Flow Summary (Three Months Ended Sep 30) | Cash Flow Activity | 2021 USD (in thousands) | 2020 USD (in thousands) | | :--- | :--- | :--- | | Net cash used in operating activities | ($17,245) | ($1,910) | | Net cash used in investing activities | ($5,258) | ($22,100) | | Net cash provided by (used in) financing activities | $1,052,127 | ($62,062) | - Financing activities provided over $1.05 billion in cash, primarily due to $455.0 million in net proceeds from the IPO. A significant portion of these proceeds, $260.0 million was used to redeem Series A Redeemable Preferred Stock[20] Notes to the Unaudited Condensed Consolidated Statements These notes detail accounting policies and financial components, highlighting the July 2021 IPO's impact on proceeds, preferred stock, equity compensation, and recurring revenue recognition - The company completed its IPO on July 20, 2021, issuing 21,275,000 shares (including underwriter's option) and generating net proceeds of approximately $455 million after discounts and costs[24] - A portion of the IPO proceeds was used to redeem all outstanding Series A Redeemable Preferred Stock for approximately $260 million[26] - In connection with the IPO, Long Term Incentive Plan (LTIP) Units converted to 1,761,578 restricted stock units (RSUs), and performance-based units under the Management Equity Plan (MEP) converted to time-based vesting units, triggering significant stock-based compensation expense[26][84][87] Disaggregated Revenue (Three Months Ended Sep 30) | Revenue Type | 2021 USD (in thousands) | 2020 USD (in thousands) | | :--- | :--- | :--- | | Recurring fees | $89,209 | $75,066 | | Implementation services and other | $3,207 | $3,485 | | Total Recurring and other revenue | $92,416 | $78,551 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the 17% revenue growth, the IPO's impact on increased operating losses due to stock-based compensation, and the company's sufficient liquidity Overview and Business Model Paycor provides SaaS HCM solutions to SMBs, generating highly recurring revenue primarily from per-employee-per-month subscriptions - Paycor is a SaaS provider of human capital management (HCM) solutions for small and medium-sized businesses, with over 28,700 customers[110] - The business model is based on highly recurring revenue, primarily from SaaS subscriptions charged on a per-employee-per-month (PEPM) basis. Recurring and other revenues constituted 99.7% of total revenue for the quarter[111] Results of Operations Total revenues increased 17% to $92.7 million, but operating loss significantly widened due to an 88% surge in sales and marketing expenses, heavily impacted by IPO-related stock compensation Revenue Breakdown (Three Months Ended Sep 30) | Revenue Component | 2021 USD (in thousands) | 2020 USD (in thousands) | % Change | | :--- | :--- | :--- | :--- | | Recurring and other revenue | $92,416 | $78,551 | 18% | | Interest income on funds held for clients | $316 | $510 | (38)% | | Total revenues | $92,732 | $79,061 | 17% | - The increase in recurring revenue was driven by a 3.2% increase in customers (to ~28,700), a rise in effective PEPM, and an increase in the average number of employees per customer, which has returned to pre-pandemic levels[156] - Sales and marketing expenses increased by $21.4 million (88%), primarily due to a $17.3 million increase in employee-related costs, which includes $13.1 million of share-based compensation expense associated with the IPO[159] - General and administrative expenses increased by $10.0 million (30%), driven by a $7.5 million increase in employee-related costs, including $4.0 million of IPO-related share-based compensation[160] Non-GAAP Financial Measures Non-GAAP metrics, including Adjusted Operating Income, are presented, showing a decline to $3.4 million due to increased investments and public company expenses Reconciliation of Loss from Operations to Adjusted Operating Income | Metric USD (in thousands) | Q1 FY2022 | Q1 FY2021 | | :--- | :--- | :--- | | Loss from Operations (GAAP) | ($52,269) | ($21,467) | | Amortization of intangible assets | $32,050 | $30,504 | | Stock-based compensation expense | $21,812 | $1,697 | | Corporate adjustments & other | $1,799 | $1,942 | | Adjusted Operating Income (Non-GAAP) | $3,392 | $12,676 | Reconciliation to Adjusted Net Income | Metric USD (in thousands) | Q1 FY2022 | Q1 FY2021 | | :--- | :--- | :--- | | Net loss before benefit for income taxes (GAAP) | ($51,280) | ($21,757) | | Adjustments (Amortization, Stock Comp, etc.) | $54,337 | $34,143 | | Non-GAAP adjusted income before taxes | $3,057 | $12,386 | | Income tax effect on adjustments | ($734) | ($2,849) | | Adjusted Net Income (Non-GAAP) | $2,323 | $9,537 | Liquidity and Capital Resources As of September 30, 2021, Paycor's principal sources of liquidity were $125.8 million in cash and cash equivalents and a $200.0 million revolving credit facility, which was undrawn. The company believes its existing cash, operating cash flows, and credit facility are sufficient to meet its working capital and capital expenditure needs for at least the next twelve months. The company's credit facility was upsized from $100 million to $200 million in September 2021 - Primary liquidity sources as of September 30, 2021, include $125.8 million in cash and cash equivalents and $200.0 million available under a revolving credit facility[192] - In September 2021, the company amended its credit agreement to increase the size of its revolving credit facility from $100.0 million to $200.0 million[197] - Management believes existing cash, cash from operations, and the credit facility will be sufficient to meet needs for at least the next twelve months[193] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risks are related to foreign currency exchange and interest rates. Foreign currency risk is not considered significant as most sales are in U.S. dollars. Interest rate risk affects income from funds held for clients and the cost of variable-rate debt. As of September 30, 2021, the company had no outstanding debt, and a hypothetical 100-basis point change in interest rates would not have a material impact on its financial statements - The company's revenue is not subject to significant foreign currency risk as most sales are denominated in U.S. dollars[215] - Interest rate risk exists for interest income on client funds and for variable-rate debt. A decline in rates would decrease interest income[217] - As of September 30, 2021, the company had no outstanding debt under its 2021 Credit Facility, so a 100-basis point change in rates would have no impact on interest expense[219] Item 4. Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures as of September 30, 2021. They concluded that these controls and procedures were effective. There were no material changes to the company's internal control over financial reporting during the quarter - Based on an evaluation as of September 30, 2021, the Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective[222] - No changes were made to internal control over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, these controls[223] Part II - OTHER INFORMATION This section covers legal proceedings, risk factors, unregistered equity sales, use of IPO proceeds, and a list of exhibits Item 1. Legal Proceedings The company is not currently a party to any legal proceedings that are expected to have a material adverse effect on its business, financial condition, or liquidity - The company is not presently a party to any legal proceedings that it believes would have a material adverse effect on its business[225] Item 1A. Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Form 10-K filed with the SEC on September 2, 2021 - No material changes have occurred from the risk factors disclosed in the Form 10-K filed on September 2, 2021[225] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the use of proceeds from the company's Initial Public Offering (IPO) in July 2021. The IPO generated approximately $458.7 million in net proceeds after underwriter discounts. Of this amount, approximately $260.0 million was used to fund the redemption of the Series A Redeemable Preferred Stock - The IPO in July 2021 generated net proceeds of approximately $458.7 million after underwriting discounts[228] - On July 23, 2021, the company used approximately $260.0 million of the IPO proceeds to redeem its Series A Redeemable Preferred Stock[228] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including the company's amended certificate of incorporation and bylaws, various agreements, incentive plans, and officer certifications required by the Sarbanes-Oxley Act