UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2022

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______ to ______

Commission File Number: 001-36393

Paycom Software, Inc.

(Exact name of registrant as specified in its charter)

Delaware	80-0957485
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

7501 W. Memorial Road Oklahoma City, Oklahoma	73142
(Address of principal executive offices)	(Zip Code)

(405) 722-6900

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 par value	PAYC	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☒	Accelerated filer	☐
Non-accelerated filer ☐	Smaller reporting company	☐

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of October 25, 2022, there were 60,020,369 shares of common stock, par value of $0.01 per share, outstanding, including 2,153,904 shares of restricted stock.

Paycom Software, Inc.

	PART I – FINANCIAL INFORMATION
Item 1.	Financial Statements	3
	Unaudited Consolidated Balance Sheets	3
	Unaudited Consolidated Statements of Comprehensive Income	4
	Unaudited Consolidated Statements of Stockholders’ Equity	5
	Unaudited Consolidated Statements of Cash Flows	6
	Notes to the Unaudited Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	33
Item 4.	Controls and Procedures	33
	PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	34
Item 1A.	Risk Factors	34
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	34
Item 5.	Other Information	34
Item 6.	Exhibits	36
Signatures		37

2

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Paycom Software, Inc.

Unaudited Consolidated Balance Sheets

(in thousands, except per share amounts)

	September 30, 2022			December 31, 2021
Assets
Current assets:
Cash and cash equivalents	$	317,163		$	277,978
Accounts receivable		14,896			9,490
Prepaid expenses		39,717			23,729
Inventory		1,471			1,131
Income tax receivable		15,168			16,413
Deferred contract costs		90,832			76,724
Current assets before funds held for clients		479,247			405,465
Funds held for clients		1,749,115			1,846,573
Total current assets		2,228,362			2,252,038
Property and equipment, net		383,860			348,953
Intangible assets, net		54,993			58,028
Goodwill		51,889			51,889
Long-term deferred contract costs		536,942			461,852
Other assets		58,524			42,385
Total assets	$	3,314,570		$	3,215,145
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	10,211		$	5,772
Accrued commissions and bonuses		19,037			22,357
Accrued payroll and vacation		36,069			34,259
Deferred revenue		19,546			16,277
Current portion of long-term debt		—			1,775
Accrued expenses and other current liabilities		58,797			63,397
Current liabilities before client funds obligation		143,660			143,837
Client funds obligation		1,754,095			1,846,573
Total current liabilities		1,897,755			1,990,410
Deferred income tax liabilities, net		139,368			145,504
Long-term deferred revenue		94,465			85,149
Net long-term debt, less current portion		29,000			27,380
Other long-term liabilities		77,602			72,988
Total long-term liabilities		340,435			331,021
Total liabilities		2,238,190			2,321,431
Commitments and contingencies
Stockholders’ equity:
Common stock, $0.01 par value (100,000 shares authorized, 62,517 and 62,298 shares issued at September 30, 2022 and December 31, 2021, respectively; 57,867 and 58,012 shares outstanding at September 30, 2022 and December 31, 2021, respectively)		625			623
Additional paid-in capital		550,302			465,594
Retained earnings		1,117,017			915,579
Accumulated other comprehensive earnings (loss)		(3,813	)		—
Treasury stock, at cost (4,650 and 4,286 shares at September 30, 2022 and December 31, 2021, respectively)		(587,751	)		(488,082	)
Total stockholders’ equity		1,076,380			893,714
Total liabilities and stockholders’ equity	$	3,314,570		$	3,215,145

See accompanying notes to the unaudited consolidated financial statements.

3

Paycom Software, Inc.

Unaudited Consolidated Statements of Comprehensive Income

(in thousands, except per share amounts)

	Three Months Ended September 30,					Nine Months Ended September 30,
	2022			2021		2022			2021
Revenues
Recurring	$	328,150		$	251,306	$	987,848		$	756,665
Implementation and other		6,017			4,888		16,762			13,873
Total revenues		334,167			256,194		1,004,610			770,538
Cost of revenues
Operating expenses		44,169			34,766		122,265			92,612
Depreciation and amortization		10,935			7,914		31,405			22,751
Total cost of revenues		55,104			42,680		153,670			115,363
Administrative expenses
Sales and marketing		91,114			69,745		253,834			200,485
Research and development		40,366			31,077		108,774			84,012
General and administrative		60,693			59,980		179,109			160,234
Depreciation and amortization		12,625			9,407		36,378			25,503
Total administrative expenses		204,798			170,209		578,095			470,234
Total operating expenses		259,902			212,889		731,765			585,597
Operating income		74,265			43,305		272,845			184,941
Interest expense		(1,018	)		—		(1,587	)		—
Other income (expense), net		2,041			244		4,331			1,019
Income before income taxes		75,288			43,549		275,589			185,960
Provision for income taxes		23,135			13,170		74,151			38,687
Net income	$	52,153		$	30,379	$	201,438		$	147,273
Earnings per share, basic	$	0.90		$	0.52	$	3.48		$	2.55
Earnings per share, diluted	$	0.90		$	0.52	$	3.46		$	2.53
Weighted average shares outstanding:
Basic		57,865			57,935		57,949			57,843
Diluted		58,033			58,190		58,193			58,192
Comprehensive earnings (loss):
Net income	$	52,153		$	30,379	$	201,438		$	147,273
Unrealized net gains (losses) on available-for-sale securities		(2,705	)		—		(4,881	)		—
Tax effect		492			—		1,068			—
Other comprehensive income (loss), net of tax		(2,213	)		—		(3,813	)		—
Comprehensive earnings (loss)	$	49,940		$	30,379	$	197,625		$	147,273

See accompanying notes to the unaudited consolidated financial statements.

4

Paycom Software, Inc.

Unaudited Consolidated Statements of Stockholders’ Equity

(in thousands)

	Common Stock				Additional			Retained		Accumulated Other		Treasury Stock					Total
	Shares		Amount		Paid-in Capital			Earnings		Comprehensive Loss		Shares		Amount			Stockholders’ Equity
Balances at December 31, 2020		61,861	$	618	$	357,908		$	719,619	$	—		4,122	$	(422,502	)	$	655,643
Vesting of restricted stock		3		—		—			—		—		—		—			—
Stock-based compensation		—		—		25,594			—		—		—		—			25,594
Repurchases of common stock		—		—		—			—		—		1		(377	)		(377	)
Net income		—		—		—			64,616		—		—		—			64,616
Balances at March 31, 2021		61,864	$	618	$	383,502		$	784,235	$	—		4,123	$	(422,879	)	$	745,476
Vesting of restricted stock		271		3		(3	)		—		—		—		—			—
Stock-based compensation		—		—		26,480			—		—		—		—			26,480
Repurchases of common stock		—		—		—			—		—		94		(31,978	)		(31,978	)
Net income		—		—		—			52,278		—		—		—			52,278
Balances at June 30, 2021		62,135	$	621	$	409,979		$	836,513	$	—		4,217	$	(454,857	)	$	792,256
Vesting of restricted stock		140		1		(1	)		—		—		—		—			—
Stock-based compensation		—		—		31,501			—		—		—		—			31,501
Repurchases of common stock		—		—		—			—		—		61		(28,795	)		(28,795	)
Net income		—		—		—			30,379		—		—		—			30,379
Balances at September 30, 2021		62,275	$	622	$	441,479		$	866,892	$	—		4,278	$	(483,652	)	$	825,341
	Common Stock				Additional			Retained		Accumulated Other		Treasury Stock					Total
	Shares		Amount		Paid-in Capital			Earnings		Comprehensive Loss		Shares		Amount			Stockholders’ Equity
Balances at December 31, 2021		62,298	$	623	$	465,594		$	915,579	$	—		4,286	$	(488,082	)	$	893,714
Vesting of restricted stock		4		—		—			—		—		—