Paycor HCM(PYCR) - 2023 Q3 - Quarterly Report

Part I - FINANCIAL INFORMATION Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements for the three and nine months ended March 31, 2023 Unaudited Condensed Consolidated Balance Sheets Total assets decreased to $2.74 billion due to a reduction in funds held for clients, while stockholders' equity remained stable Condensed Consolidated Balance Sheet Data (in thousands) | Account | March 31, 2023 | June 30, 2022 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $82,858 | $133,041 | | Funds held for clients | $1,258,249 | $1,715,916 | | Goodwill | $761,425 | $750,155 | | Total assets | $2,742,998 | $3,131,317 | | Liabilities & Equity | | | | Client fund obligations | $1,260,057 | $1,719,047 | | Total liabilities | $1,457,734 | $1,846,586 | | Total stockholders' equity | $1,285,264 | $1,284,731 | Unaudited Condensed Consolidated Statements of Operations Q3 revenue grew 31.7% to $161.5 million, driven by recurring revenue and interest income, narrowing the net loss to $7.3 million Statement of Operations Highlights (in thousands, except per share data) | Metric | Q3 2023 | Q3 2022 | 9 Months 2023 | 9 Months 2022 | | :--- | :--- | :--- | :--- | :--- | | Total revenues | $161,482 | $122,597 | $412,649 | $318,396 | | Gross profit | $112,159 | $81,440 | $273,957 | $190,546 | | Loss from operations | $(8,031) | $(23,461) | $(72,990) | $(109,494) | | Net loss | $(7,340) | $(16,698) | $(63,855) | $(84,198) | | Net loss per share (basic & diluted) | $(0.04) | $(0.10) | $(0.36) | $(0.56) | Unaudited Condensed Consolidated Statements of Cash Flows Net cash from operations was $16.4 million, while investing and financing activities resulted in significant cash outflows Cash Flow Summary (in thousands) | Activity | Nine Months Ended Mar 31, 2023 | Nine Months Ended Mar 31, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $16,385 | $11,631 | | Net cash used in investing activities | $(177,619) | $(76,887) | | Net cash (used in) provided by financing activities | $(447,416) | $1,349,901 | Notes to the Unaudited Condensed Consolidated Statements Key disclosures cover accounting policies, the Talenya acquisition, a new naming rights deal, and the adoption of lease standard ASC 842 - The company is a leading provider of HCM software for small and medium-sized businesses (10-1,000 employees) via a SaaS delivery model[32] - On October 27, 2022, the Company acquired Talenya Ltd, an AI-driven talent sourcing provider, for an initial cash price of $20 million, plus up to $10 million in earnouts, adding $12.1 million to goodwill[53][55] - On August 7, 2022, the Company entered into a 16-year naming rights partnership for Paycor Stadium, home of the Cincinnati Bengals, which was recorded as an intangible asset[68][69] - The company adopted the new lease standard ASC 842 on July 1, 2022, resulting in the recognition of $17.5 million in lease assets and $24.6 million in lease liabilities[43][45] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses a 32% Q3 revenue increase, improved non-GAAP profitability, and a stable liquidity position - The company's business model is based on a recurring per-employee-per-month (PEPM) SaaS subscription model, targeting SMBs with 10-1,000 employees, serving approximately 30,100 customers as of March 31, 2023[98][99] - Key growth strategies include expanding the sales footprint to add new customers, increasing product penetration with existing customers, and ongoing product innovation[105][109][112] Q3 FY2023 vs Q3 FY2022 Performance (in thousands) | Metric | Q3 2023 | Q3 2022 | % Change | | :--- | :--- | :--- | :--- | | Total Revenue | $161,482 | $122,597 | 32% | | Gross Profit | $112,159 | $81,440 | 38% | | Loss from Operations | $(8,031) | $(23,461) | (66%) | | Net Loss | $(7,340) | $(16,698) | (56%) | | Adjusted Operating Income* | $39,107 | $24,650 | 59% | Results of Operations Q3 revenue grew 32% to $161.5 million, driven by a 23% rise in recurring revenue and a surge in interest income - Q3 recurring and other revenue increased by $28.6 million (23%) YoY, driven by an increase in the average number of employees per customer and higher effective PEPM[142] - Q3 interest income on funds held for clients surged by $10.3 million (2,529%) YoY, due to higher average client fund balances and higher interest rates[142][143] - Q3 General and Administrative expenses decreased by $3.1 million (6%) YoY, primarily due to an $8.1 million decrease in loss from exiting leases[146] Non-GAAP Financial Measures Q3 Adjusted Operating Income rose 59% to $39.1 million, and Adjusted Net Income grew 70% to $31.6 million Reconciliation of Loss from Operations to Adjusted Operating Income (in thousands) | | Q3 2023 | Q3 2022 | 9 Months 2023 | 9 Months 2022 | | :--- | :--- | :--- | :--- | :--- | | Loss from Operations | $(8,031) | $(23,461) | $(72,990) | $(109,494) | | Amortization of intangible assets | 24,467 | 22,136 | 72,410 | 79,548 | | Stock-based compensation expense | 20,384 | 16,294 | 58,019 | 55,321 | | Loss on lease exit | 915 | 9,055 | 1,733 | 9,055 | | Corporate adjustments | 1,372 | 626 | 7,991 | 3,871 | | Adjusted Operating Income | $39,107 | $24,650 | $67,163 | $38,301 | Adjusted Net Income Attributable to Paycor HCM, Inc. (in thousands, except per share) | | Q3 2023 | Q3 2022 | 9 Months 2023 | 9 Months 2022 | | :--- | :--- | :--- | :--- | :--- | | Adjusted Net Income | $31,589 | $18,648 | $53,449 | $28,932 | | Adjusted Net Income Per Share | $0.18 | $0.11 | $0.30 | $0.17 | Liquidity and Capital Resources The company maintains strong liquidity with $82.9 million in cash and $200 million available under its credit facility - Principal sources of liquidity as of March 31, 2023, were cash and cash equivalents of $82.9 million and $200.0 million of available borrowing capacity under the revolving credit facility[190] - The company had no outstanding borrowings under its Revolving Credit Facility as of March 31, 2023, and was in compliance with all financial covenants[194][196] - Net cash provided by operating activities for the nine months ended March 31, 2023, was $16.4 million, compared to $11.6 million for the same period in 2022[200] Item 3. Quantitative and Qualitative Disclosures About Market Risk Primary market risks are interest rate fluctuations affecting client fund income and foreign currency exchange, which is currently minimal - The company is exposed to interest rate risk on its cash equivalents and funds held for clients, which totaled $1,258.2 million as of March 31, 2023[214][215] - A hypothetical 100-basis point change in interest rates would have an immaterial effect on the market value of the company's available-for-sale securities as of March 31, 2023[215] - As of March 31, 2023, there was no outstanding debt under the Revolving Credit Facility, so a 100-basis point change in market interest rates would result in no change to interest expense[217] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2023, with no material changes - Based on an evaluation as of March 31, 2023, the Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective[223] - There were no material changes to the company's internal control over financial reporting during the third quarter of fiscal 2023 that have materially affected, or are reasonably likely to materially affect, internal controls[224] Part II - OTHER INFORMATION 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 - The company is not presently a party to any legal proceedings that would be expected to have a material adverse effect on the business[227] Item 1A. Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K - There have been no material changes from the risk factors set forth in the company's Annual Report on Form 10-K[227] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds None reported for the period - None[228] Item 3. Defaults Upon Senior Securities None reported for the period - None[229] Item 4. Mine Safety Disclosures Not applicable - None[230] Item 5. Other Information None reported for the period - None[231] Item 6. Exhibits This section lists the exhibits filed with the quarterly report, including officer certifications required by the Sarbanes-Oxley Act