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 March 31, 2023

☐ 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 April 25, 2023, there were 60,292,594 shares of common stock, par value of $0.01 per share, outstanding, including 2,419,499 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	31
Item 4.	Controls and Procedures	31
	PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	32
Item 1A.	Risk Factors	32
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	32
Item 5.	Other Information	32
Item 6.	Exhibits	35
Signatures		36

2

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Paycom Software, Inc.

Unaudited Consolidated Balance Sheets

(in thousands, except per share amounts)

	March 31, 2023			December 31, 2022
Assets
Current assets:
Cash and cash equivalents	$	505,590		$	400,730
Accounts receivable		17,802			22,843
Prepaid expenses		40,260			34,056
Inventory		887			1,607
Income tax receivable		—			5,583
Deferred contract costs		102,374			96,378
Current assets before funds held for clients		666,913			561,197
Funds held for clients		2,387,778			2,202,975
Total current assets		3,054,691			2,764,172
Property and equipment, net		421,017			402,448
Intangible assets, net		53,040			54,017
Goodwill		51,889			51,889
Long-term deferred contract costs		602,205			567,974
Other assets		58,780			62,013
Total assets	$	4,241,622		$	3,902,513
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	10,036		$	16,054
Income tax payable		19,350			—
Accrued commissions and bonuses		17,594			28,439
Accrued payroll and vacation		36,188			45,023
Deferred revenue		20,505			19,825
Accrued expenses and other current liabilities		70,090			59,990
Current liabilities before client funds obligation		173,763			169,331
Client funds obligation		2,391,335			2,207,706
Total current liabilities		2,565,098			2,377,037
Deferred income tax liabilities, net		139,661			141,033
Long-term deferred revenue		100,297			97,591
Long-term debt		29,000			29,000
Other long-term liabilities		73,095			75,245
Total long-term liabilities		342,053			342,869
Total liabilities		2,907,151			2,719,906
Commitments and contingencies
Stockholders’ equity:
Common stock, $0.01 par value (100,000 shares authorized, 62,525 and 62,518 shares issued at March 31, 2023 and December 31, 2022, respectively; 57,872 and 57,867 shares outstanding at March 31, 2023 and December 31, 2022, respectively)		625			625
Additional paid-in capital		608,966			576,622
Retained earnings		1,316,264			1,196,968
Accumulated other comprehensive earnings (loss)		(2,853	)		(3,703	)
Treasury stock, at cost (4,653 and 4,651 shares at March 31, 2023 and December 31, 2022, respectively)		(588,531	)		(587,905	)
Total stockholders’ equity		1,334,471			1,182,607
Total liabilities and stockholders’ equity	$	4,241,622		$	3,902,513

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 March 31,
	2023			2022
Revenues
Recurring	$	444,421		$	348,164
Implementation and other		7,216			5,355
Total revenues		451,637			353,519
Cost of revenues
Operating expenses		53,085			38,492
Depreciation and amortization		12,147			9,992
Total cost of revenues		65,232			48,484
Administrative expenses
Sales and marketing		103,574			74,996
Research and development		42,669			31,605
General and administrative		65,605			60,504
Depreciation and amortization		14,125			11,663
Total administrative expenses		225,973			178,768
Total operating expenses		291,205			227,252
Operating income		160,432			126,267
Interest expense		(837	)		(215	)
Other income (expense), net		6,004			1,412
Income before income taxes		165,599			127,464
Provision for income taxes		46,303			35,534
Net income	$	119,296		$	91,930
Earnings per share, basic	$	2.06		$	1.58
Earnings per share, diluted	$	2.06		$	1.58
Weighted average shares outstanding:
Basic		57,867			58,014
Diluted		57,991			58,219
Comprehensive earnings (loss):
Net income	$	119,296		$	91,930
Unrealized net gains (losses) on available-for-sale securities		1,050			(1,522	)
Tax effect		(200	)		403
Other comprehensive income (loss), net of tax		850			(1,119	)
Comprehensive earnings (loss)	$	120,146		$	90,811

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, 2021		62,298	$	623	$	465,594	$	915,579	$	—			4,286	$	(488,082	)	$	893,714
Vesting of restricted stock		4		—		—		—		—			—		—			—
Stock-based compensation		—		—		24,713		—		—			—		—			24,713
Repurchases of common stock		—		—		—		—		—			1		(218	)		(218	)
Net income		—		—		—		91,930		—			—		—			91,930
Other comprehensive earnings (loss), net of tax		—		—		—		—		(1,119	)		—		—			(1,119	)
Balances at March 31, 2022		62,302	$	623	$	490,307	$	1,007,509	$	(1,119	)		4,287	$	(488,300	)	$	1,009,020
	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, 2022		62,518	$	625	$	576,622	$	1,196,968	$	(3,703	)		4,651	$	(587,905	)	$	1,182,607
Vesting of restricted stock		7		—		—		—		—			—		—			—
Stock-based compensation		—		—		32,344		—		—			—		—			32,344
Repurchases of common stock		—		—		—		—		—			2		(626	)		(626	)
Net income		—		—		—		119,296		—			—		—			119,296
Other comprehensive earnings (loss), net of tax		—		—		—		—		850			—		—			850
Balances at March 31, 2023		62,525	$	625	$	608,966	$	1,316,264	$	(2,853	)		4,653	$	(588,531	)	$	1,334,471

See accompanying notes to the unaudited consolidated financial statements.

5

Paycom Software, Inc.

Unaudited Consolidated Statements of Cash Flows

(in thousands)

	Three Months Ended March 31,
	2023			2022
Cash flows from operating activities
Net income	$	119,296		$	91,930
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		26,272			21,655
Accretion of discount on available-for-sale securities		(124	)		(303	)
Non-cash marketing expense		418			437
Gain on disposition of property and equipment		(13	)		—
Amortization of debt issuance costs		308			9
Stock-based compensation expense		27,819			22,055
Cash paid for derivative settlement		—			(174	)
Gain on derivative		—			(1,089	)
Deferred income taxes, net		(1,650	)		(10,332	)
Other		78			—
Changes in operating assets and liabilities:
Accounts receivable		5,041			(8,455	)
Prepaid expenses		(6,984	)		(4,859	)
Inventory		385			124
Other assets		2,923			(2,970	)
Deferred contract costs		(38,519	)		(36,261	)
Accounts payable		(4,645	)		5,406
Income taxes, net		24,933			39,593
Accrued commissions and bonuses		(10,845	)		(10,309	)
Accrued payroll and vacation		(8,835	)		8,579
Deferred revenue		3,386			3,390
Accrued expenses and other current liabilities		6,859			(1,195	)
Net cash provided by operating activities		146,103			117,231
Cash flows from investing activities
Purchases of investments from funds held for clients		(25,000	)		(169,152	)
Proceeds from investments from funds held for clients		25,000			136,000
Purchases of property and equipment		(40,618	)		(34,474	)
Net cash used in investing activities		(40,618	)		(67,626	)
Cash flows from financing activities
Withholding taxes paid related to net share settlements		(626	)		(218	)
Payments on long-term debt		—			(444	)
Net change in client funds obligation		183,629			2,099,530
Net cash provided by financing activities		183,003			2,098,868
Increase in cash, cash equivalents, restricted cash and restricted cash equivalents		288,488			2,148,473
Cash, cash equivalents, restricted cash and restricted cash equivalents
Cash, cash equivalents, restricted cash and restricted cash equivalents, beginning of period		2,409,095			1,812,691
Cash, cash equivalents, restricted cash and restricted cash equivalents, end of period	$	2,697,583		$	3,961,164
	Three Months Ended March 31,
	2023			2022
Reconciliation of cash, cash equivalents, restricted cash and restricted cash equivalents
Cash and cash equivalents	$	505,590		$	360,594
Restricted cash included in funds held for clients		2,191,993			3,600,570
Total cash, cash equivalents, restricted cash and restricted cash equivalents, end of period	$	2,697,583		$	3,961,164
Supplemental disclosures of cash flow information:
Non-cash investing and financing activities:
Purchases of property and equipment, accrued but not paid	$	6,991		$	5,394
Stock-based compensation for capitalized software	$	3,597		$