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 June 30, 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 July 25, 2023, there were 60,467,053 shares of common stock, par value of $0.01 per share, outstanding, including 2,517,963 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	22
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	32
Item 4.	Controls and Procedures	32
	PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	33
Item 1A.	Risk Factors	33
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	35
Item 6.	Exhibits	36
Signatures		38

2

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Paycom Software, Inc.

Unaudited Consolidated Balance Sheets

(in thousands, except per share amounts)

	June 30, 2023			December 31, 2022
Assets
Current assets:
Cash and cash equivalents	$	536,545		$	400,730
Accounts receivable		16,193			22,843
Prepaid expenses		43,093			34,056
Inventory		874			1,607
Income tax receivable		1,938			5,583
Deferred contract costs		107,059			96,378
Current assets before funds held for clients		705,702			561,197
Funds held for clients		2,002,492			2,202,975
Total current assets		2,708,194			2,764,172
Property and equipment, net		444,992			402,448
Intangible assets, net		52,064			54,017
Goodwill		51,889			51,889
Long-term deferred contract costs		623,751			567,974
Other assets		70,451			62,013
Total assets	$	3,951,341		$	3,902,513
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	8,485		$	16,054
Accrued commissions and bonuses		21,879			28,439
Accrued payroll and vacation		49,977			45,023
Deferred revenue		21,343			19,825
Accrued expenses and other current liabilities		78,889			59,990
Current liabilities before client funds obligation		180,573			169,331
Client funds obligation		2,006,154			2,207,706
Total current liabilities		2,186,727			2,377,037
Deferred income tax liabilities, net		142,956			141,033
Long-term deferred revenue		102,890			97,591
Long-term debt		29,000			29,000
Other long-term liabilities		83,083			75,245
Total long-term liabilities		357,929			342,869
Total liabilities		2,544,656			2,719,906
Commitments and contingencies
Stockholders’ equity:
Common stock, $0.01 par value (100,000 shares authorized, 62,640 and 62,518 shares issued at June 30, 2023 and December 31, 2022, respectively; 57,949 and 57,867 shares outstanding at June 30, 2023 and December 31, 2022, respectively)		626			625
Additional paid-in capital		649,965			576,622
Retained earnings		1,358,059			1,196,968
Accumulated other comprehensive earnings (loss)		(2,993	)		(3,703	)
Treasury stock, at cost (4,691 and 4,651 shares at June 30, 2023 and December 31, 2022, respectively)		(598,972	)		(587,905	)
Total stockholders’ equity		1,406,685			1,182,607
Total liabilities and stockholders’ equity	$	3,951,341		$	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 June 30,						Six Months Ended June 30,
	2023			2022			2023			2022
Revenues
Recurring	$	394,522		$	311,534		$	838,943		$	659,698
Implementation and other		6,617			5,390			13,833			10,745
Total revenues		401,139			316,924			852,776			670,443
Cost of revenues
Operating expenses		54,617			39,604			107,702			78,096
Depreciation and amortization		12,811			10,478			24,958			20,470
Total cost of revenues		67,428			50,082			132,660			98,566
Administrative expenses
Sales and marketing		106,435			87,724			210,009			162,720
Research and development		49,118			36,803			91,787			68,408
General and administrative		75,965			57,912			141,570			118,416
Depreciation and amortization		14,927			12,090			29,052			23,753
Total administrative expenses		246,445			194,529			472,418			373,297
Total operating expenses		313,873			244,611			605,078			471,863
Operating income		87,266			72,313			247,698			198,580
Interest expense		(602	)		(354	)		(1,439	)		(569	)
Other income (expense), net		6,183			878			12,187			2,290
Income before income taxes		92,847			72,837			258,446			200,301
Provision for income taxes		28,331			15,482			74,634			51,016
Net income	$	64,516		$	57,355		$	183,812		$	149,285
Earnings per share, basic	$	1.11		$	0.99		$	3.17		$	2.57
Earnings per share, diluted	$	1.11		$	0.99		$	3.17		$	2.57
Weighted average shares outstanding:
Basic		57,920			57,969			57,895			57,992
Diluted		58,033			58,067			58,050			58,186
Comprehensive earnings (loss):
Net income	$	64,516		$	57,355		$	183,812		$	149,285
Unrealized net gains (losses) on available-for-sale securities		(235	)		(654	)		815			(2,176	)
Tax effect		95			173			(105	)		576
Other comprehensive income (loss), net of tax		(140	)		(481	)		710			(1,600	)
Comprehensive earnings (loss)	$	64,376		$	56,874		$	184,522		$	147,685

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
Vesting of restricted stock		212		2		(2	)		—		—			—		—			—
Stock-based compensation		—		—		27,472			—		—			—		—			27,472
Repurchases of common stock		—		—		—			—		—			363		(99,227	)		(99,227	)
Net income		—		—		—			57,355		—			—		—			57,355
Other comprehensive earnings (loss), net of tax		—		—		—			—		(481	)		—		—			(481	)
Balances at June 30, 2022		62,514	$	625	$	517,777		$	1,064,864	$	(1,600	)		4,650	$	(587,527	)	$	994,139
	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
Vesting of restricted stock		115		1		(1	)