Paycor HCM(PYCR) - 2023 Q1 - Quarterly Report

Part I - FINANCIAL INFORMATION Financial Statements Presents unaudited condensed consolidated financial statements for Q1 FY2023, showing 28% revenue growth, a reduced net loss, and key balance sheet figures Unaudited Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2022 (in thousands) | Jun 30, 2022 (in thousands) | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $98,161 | $133,041 | | Funds held for clients | $933,307 | $1,715,916 | | Goodwill | $749,221 | $750,155 | | Intangible assets, net | $322,645 | $263,069 | | Total Assets | $2,413,232 | $3,131,317 | | Liabilities & Equity | | | | Client fund obligations | $938,836 | $1,719,047 | | Total Liabilities | $1,139,373 | $1,846,586 | | Total Stockholders' Equity | $1,273,859 | $1,284,731 | - The decrease in 'Funds held for clients' and 'Client fund obligations' from June 30, 2022, to September 30, 2022, reflects typical quarterly fluctuations in client payroll cycles[16] Unaudited Condensed Consolidated Statements of Operations Condensed Consolidated Statements of Operations (in thousands, except per share data) | Metric | Q1 FY2023 (Ended Sep 30, 2022) (in thousands) | Q1 FY2022 (Ended Sep 30, 2021) (in thousands) | YoY Change | | :--- | :--- | :--- | :--- | | Total Revenues | $118,303 | $92,732 | +27.6% | | Gross Profit | $75,118 | $47,121 | +59.4% | | Loss from Operations | ($33,390) | ($52,269) | +36.1% (Improvement) | | Net Loss | ($29,052) | ($42,036) | +30.9% (Improvement) | | Net Loss per Share (Basic & Diluted) | ($0.17) | ($0.32) | +46.9% (Improvement) | - Interest income on funds held for clients increased dramatically to $4.1 million from $0.3 million in the prior-year quarter, driven by higher interest rates[18] Unaudited Condensed Consolidated Statements of Cash Flows Condensed Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity | Three Months Ended Sep 30, 2022 (in thousands) | Three Months Ended Sep 30, 2021 (in thousands) | | :--- | :--- | :--- | | Net cash used in operating activities | ($24,101) | ($17,245) | | Net cash used in investing activities | ($118,960) | ($5,258) | | Net cash (used in) provided by financing activities | ($772,641) | $1,052,127 | - The significant swing in financing cash flows from positive in 2021 to negative in 2022 is primarily due to the 2021 period including $455 million in net proceeds from the IPO, while the 2022 period reflects a net decrease in cash held to satisfy client fund obligations[27] Notes to the Unaudited Condensed Consolidated Statements - The company provides a comprehensive suite of HCM solutions, including payroll, HR, talent management, and benefits administration, primarily targeting small and medium-sized businesses (10-1,000 employees) in the U.S. via a SaaS model[30] - On August 7, 2022, the company entered into a 16-year partnership with the Cincinnati Bengals for the exclusive naming rights to Paycor Stadium, which has been recorded as an intangible asset[62][63] - Subsequent to the quarter end, on October 27, 2022, the company acquired 100% of Talenya Ltd., an AI-driven talent sourcing solution, for an initial purchase price of $20 million, with potential earnouts up to an additional $30 million[85] Management's Discussion and Analysis of Financial Condition and Results of Operations Discusses 28% revenue growth driven by customer expansion and product penetration, improved gross margin, and increased Non-GAAP Adjusted Operating Income Overview and Key Factors Affecting Performance - The company's business model is based on recurring revenue from SaaS subscriptions, typically on a per-employee-per-month (PEPM) basis, providing significant visibility into future results[89] - Key growth drivers include expanding the sales footprint to add new customers, increasing product penetration with existing customers through bundled pricing, and ongoing product innovation[95][98][101] Customer Growth | Metric | Sep 30, 2022 | Sep 30, 2021 | YoY Change | | :--- | :--- | :--- | :--- | | Customer Count | ~29,900 | ~28,700 | +4.2% | Results of Operations Revenue Breakdown (in thousands) | Revenue Source | Q1 FY2023 (in thousands) | Q1 FY2022 (in thousands) | YoY Change | | :--- | :--- | :--- | :--- | | Recurring and other revenue | $114,169 | $92,416 | +24% | | Interest income on funds held for clients | $4,134 | $316 | +1,208% | | Total Revenues | $118,303 | $92,732 | +28% | - Cost of revenues decreased by 5% YoY to $43.2 million, primarily due to a $10.6 million decrease in amortization expense from fully amortized software acquired in 2018[132] - Sales and marketing expenses increased 5% to $48.2 million, driven by amortization from the new stadium naming rights agreement and increased travel, partially offset by lower share-based compensation[133] - Research and development expenses grew 22% to $12.4 million, reflecting increased investment in employee-related costs and licensing fees to enhance product offerings[135] Non-GAAP Financial Measures Reconciliation of GAAP Loss from Operations to Non-GAAP Adjusted Operating Income (in thousands) | Metric | Q1 FY2023 (in thousands) | Q1 FY2022 (in thousands) | | :--- | :--- | :--- | | Loss from Operations (GAAP) | ($33,390) | ($52,269) | | Amortization of intangible assets | $23,270 | $32,050 | | Stock-based compensation expense | $16,951 | $21,812 | | Other adjustments | $3,582 | $1,799 | | Adjusted Operating Income (Non-GAAP) | $10,413 | $3,392 | Reconciliation of GAAP Net Loss to Non-GAAP Adjusted Net Income (in thousands) | Metric | Q1 FY2023 (in thousands) | Q1 FY2022 (in thousands) | | :--- | :--- | :--- | | Net loss before benefit for income taxes (GAAP) | ($34,032) | ($51,280) | | Non-GAAP Adjustments | $44,226 | $54,337 | | Non-GAAP adjusted income before taxes | $10,664 | $3,057 | | Income tax effect on adjustments | ($2,453) | ($734) | | Adjusted Net Income (Non-GAAP) | $8,211 | $2,323 | Liquidity and Capital Resources - As of September 30, 2022, principal sources of liquidity were $98.2 million in cash and cash equivalents and $200.0 million of available borrowing capacity under a revolving credit facility[170] - The company believes existing cash, available credit, and cash from operations will be sufficient to meet working capital and capital expenditure needs for at least the next twelve months[171] Quantitative and Qualitative Disclosures About Market Risk Details primary market risk from interest rate fluctuations on client funds and debt securities, while foreign currency and inflation risks are minimal - The main market risk is from interest rate changes on the $933.3 million in funds held for clients, where a decline in rates would decrease interest income[192][193] - The company had no outstanding debt under its Revolving Credit Facility as of September 30, 2022, thus market interest rate changes would not impact interest expense[195] - Foreign currency risk is minimal as most sales are denominated in U.S. dollars, and inflation's impact has not been significant to date[191][196] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of September 30, 2022, with no material changes to internal controls - Based on an evaluation as of September 30, 2022, the Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective[200] - No material changes were made to the internal control over financial reporting during the three months ended September 30, 2022[201] Part II - OTHER INFORMATION Legal Proceedings The company is not involved in any legal proceedings expected to materially adversely affect its business or financial condition - The company is not presently a party to any legal proceedings that would be expected to have a material adverse effect on its business, financial condition, or liquidity[204] Risk Factors No material changes have occurred to the risk factors previously disclosed in the Form 10-K filed on August 24, 2022 - No material changes have occurred from the risk factors set forth in the Form 10-K filed with the SEC on August 24, 2022[204] Unregistered Sales of Equity Securities and Use of Proceeds There were no unregistered sales of equity securities during the reporting period - There were no unregistered sales of equity securities during the period[205] Exhibits Lists exhibits filed with the Form 10-Q, including corporate documents and officer certifications required by Sarbanes-Oxley Act - The report includes certifications from the Principal Executive Officer and Principal Financial Officer as required by Section 302 of the Sarbanes-Oxley Act of 2002[210]