Paycom Software, Inc. Reports Second Quarter 2015 Financial Results

Record Second Quarter Revenue of $49.0 Million, up 47% year-over-year

Second Quarter GAAP Earnings Per Diluted Share of $0.10

Second Quarter Non-GAAP Earnings Per Diluted Share of $0.10

OKLAHOMA CITY--()--Paycom Software, Inc. (“Paycom”) (NYSE: PAYC), a leading provider of comprehensive, cloud-based human capital management software delivered as Software-as-a-Service, today announced its financial results for the quarter ended June 30, 2015.

“Paycom continues to lead the industry with the rapid development and introduction of innovative and effective cloud-based solutions,” said Chad Richison, Paycom founder and CEO. “In the second quarter, we extended our commitment to provide best-in-class solutions to the mid-market with the introduction of our Enhanced ACA and GL Concierge applications. Our technology and strong sales model propelled our ability to add to our growing client base. We remain committed to providing the highest quality payroll and human capital management solution, which continues to drive our success and strong financial results.”

Financial Highlights for the Second Quarter of 2015

Total Revenues of $49.0 million represented a 47% increase compared to total revenues of $33.3 million in the same period last year. Recurring revenues of $47.8 million represented an increase of 46.4% from the comparable prior year period, and comprised 97.6% of total revenues.

GAAP Net Income was $5.9 million, or $0.10 per diluted share, compared to a GAAP net loss of $0.6 million, or ($0.01) per diluted share in the same period last year.

Adjusted EBITDA1 was $13.1 million, compared to $6.1 million in the same period last year.

Non-GAAP Net Income1 was $6.0 million, or $0.10 per diluted share, compared to $2.1 million, or $0.04 per diluted share, in the same period last year.

Annualized New Recurring Revenue (“ANRR”) was $16.5 million, up from $11.5 million for the same period last year, representing 43% growth from the comparable prior year period.

Cash and Cash Equivalents was $42.7 million as of June 30, 2015.

Total Debt was $26.3 million as of June 30, 2015. This debt consisted solely of debt on the corporate headquarters.

1 Adjusted EBITDA and non-GAAP net income are non-GAAP financial measures. Please see the discussion below under the heading "Use of Non-GAAP Financial Information" and the reconciliations at the end of this release for additional information concerning these non-GAAP financial measures.

Financial Outlook

Paycom provides the following expected financial guidance for the quarter ending September 30, 2015, and year ending December 31, 2015:

Third Quarter 2015

Total Revenues in the range of $51 million to $52 million.

Adjusted EBITDA in the range of $9 million to $10 million.

Fiscal Year 2015

Total Revenues in the range of $210 million to $212 million.

Adjusted EBITDA in the range of $44 million to $46 million.

We have not reconciled the Adjusted EBITDA range for the quarter ending September 30, 2015 or the year ending December 31, 2015 to net income because applicable information for future periods, on which this reconciliation would be based, is not readily available due to uncertainty regarding, and the potential variability of, depreciation and amortization, interest expense, taxes, stock-based compensation expense and other items. Accordingly, a reconciliation of these Adjusted EBITDA ranges to net income is not available at this time without unreasonable effort.

Use of Non-GAAP Financial Information

To supplement our financial information presented in accordance with generally accepted accounting principles in the United States (“GAAP”), we consider and have included certain non-GAAP financial measures in this press release, including Adjusted EBITDA and non-GAAP net income. We use Adjusted EBITDA and non-GAAP net income as supplemental measures to review and assess our performance and for planning purposes. We define: (i) Adjusted EBITDA as net income plus interest expense, taxes, depreciation and amortization, stock-based compensation expense, certain transaction expenses that are not core to our operations and net loss on early repayment of debt and (ii) non-GAAP net income as net income plus tax adjusted stock-based compensation expense, certain tax adjusted transaction expenses that are not core to our operations and tax adjusted net loss on early repayment of debt. Adjusted EBITDA and non-GAAP net income are metrics that we believe are useful to investors in evaluating our performance and facilitating comparison with other peer companies, many of which use similar non-GAAP financial measures to supplement results under GAAP.

Adjusted EBITDA and non-GAAP net income are not measures of financial performance under GAAP, and should not be considered a substitute for net income, which we consider to be the most directly comparable GAAP measure. Adjusted EBITDA and non-GAAP net income have limitations as analytical tools, and when assessing our operating performance, you should not consider Adjusted EBITDA and non-GAAP net income in isolation, or as a substitute for net income or other Condensed Consolidated Statements of Income data prepared in accordance with GAAP. Adjusted EBITDA and non-GAAP net income may not be comparable to similar titled measures of other companies and other companies may not calculate such measures in the same manner as we do.

Conference Call Details:

In conjunction with this announcement, Paycom will host a conference call today, August 4, 2015 at 5:00 p.m. Eastern Time to discuss the company's financial results. To access this call, dial (888) 317-6003 (domestic) or (412) 317-6061 (international) with conference ID 0099158. A live webcast as well as the replay of the conference call will be available on the Investor Relations page of the company's website at investors.paycom.com. A replay of this conference call can also be accessed by dialing (877) 344-7529 (domestic) or (412) 317-0088 (international) until August 19, 2015. The replay passcode is 10069012.

About Paycom

As a leader in payroll and HR technology, Oklahoma City-based Paycom redefines the human capital management industry by allowing companies to effectively navigate a rapidly changing business environment. Its cloud-based software solution is based on a core system of record maintained in a single database for all human capital management functions, providing the functionality that businesses need to manage the complete employment lifecycle, from recruitment to retirement. Paycom serves businesses of all sizes and in every industry. As one of the leading human capital management providers, Paycom serves clients in all 50 states from offices across the country.

Forward-Looking Statements

Certain statements in this press release are, and certain statements on the teleconference call may be, forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are made only as of the date hereof. These statements involve known and unknown risks and uncertainties that may cause Paycom’s actual results to differ materially from those stated or implied by such forward-looking statements, including: that our growth will generally mirror improvements in the labor market, that our capital expenditures and investment activity will continue to increase, that we will continue with our plan and ability to open additional sales offices in the future, that our existing cash and cash equivalents will be sufficient to meet our working capital and capital expenditure needs over the next twelve months, our ability to create additional jobs at our corporate headquarters, our ability to expand our corporate headquarters within an expected timeframe and our expectation of increasing our capital expenditures and investment activity as our business grows. Other factors that may cause such differences include, but are not limited to, those discussed in our periodic filings with the Securities and Exchange Commission, including those discussed in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 26, 2015 (the “Form 10-K”), and in particular the section entitled “Item 1A. Risk Factors” of the Form 10-K. Paycom undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by applicable securities laws.

 
Paycom Software, Inc.
Condensed Consolidated Balance Sheets
(in thousands, except share amounts)
(unaudited)
       
June 30, December 31,
2015 2014
Assets
Current assets:
Cash and cash equivalents $ 42,667 $ 25,144
Restricted cash - 371
Accounts receivable 2,562 2,794
Prepaid expenses 3,212 1,952
Inventory 326 195
Income tax receivable - 935
Deferred tax assets, net   373   1,445
Current assets before funds held for clients 49,140 32,836
Funds held for clients   542,807   660,557
Total current assets 591,947 693,393
Property and equipment, net 50,115 47,919
Deposits and other assets 941 645
Goodwill 51,889 51,889
Intangible assets, net   4,290   5,096
Total assets $ 699,182 $ 798,942
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 2,968 $ 3,042
Income tax payable 1,931 -
Accrued commissions and bonuses 2,539 5,080
Accrued payroll and vacation 4,964 1,582
Deferred revenue 2,958 2,535
Current portion of long-term debt 861 855
Accrued expenses and other current liabilities   6,467   5,121
Current liabilities before client funds obligation 22,688 18,215
Client funds obligation   542,807   660,557
Total current liabilities   565,495   678,772
Deferred tax liabilities, net 1,805 3,107
Long-term deferred revenue 20,077 16,802
Long-term debt, less current portion   25,435   26,123
Total long-term liabilities   47,317   46,032
Commitments and contingencies
Stockholders' equity:

Common stock, $0.01 par value (100,000,000 shares authorized, 57,050,684 and 53,832,782 shares issued and outstanding at June 30, 2015 and December 31, 2014, respectively)

571 538
Additional paid in capital 68,195 67,937
Retained earnings   17,604   5,663
Total stockholders' equity   86,370   74,138
Total liabilities and stockholders' equity $ 699,182 $ 798,942
 
 
Paycom Software, Inc.
Condensed Consolidated Statements of Income
(in thousands, except share and per share amounts)
(unaudited)
                 
Three Months Ended June 30, Six Months Ended June 30,
2015 2014 2015 2014
Revenues
Recurring $ 47,820 $ 32,666 $ 102,171 $ 69,120
Implementation and other   1,153     640     2,024     1,171  
Total revenues   48,973     33,306     104,195     70,291  
Cost of revenues
Operating expenses 7,134 5,757 14,605 12,049
Depreciation and amortization   887     608     1,697     1,238  
Total cost of revenues   8,021     6,365     16,302     13,287  
Administrative expenses
Sales and marketing 16,741 13,700 37,970 29,381
Research and development 1,907 937 3,774 1,819
General and administrative 10,096 8,138 22,080 17,406
Depreciation and amortization   1,400     1,072     2,723     2,163  
Total administrative expenses   30,144     23,847     66,547     50,769  
Total operating expenses   38,165     30,212     82,849     64,056  
Operating income 10,808 3,094 21,346 6,235
Interest expense (392 ) (674 ) (724 ) (2,741 )
Loss on early repayment of debt - (4,044 ) - (4,044 )
Other income, net   19     587     52     1,356  
Income (loss) before income taxes 10,435 (1,037 ) 20,674 806
Provision (benefit) for income taxes   4,489     (444 )   8,733     339  
Net income (loss) $ 5,946   $ (593 ) $ 11,941   $ 467  
Net income (loss) per share, basic $ 0.10 $ (0.01 ) $ 0.21 $ 0.01
Net income (loss) per share, diluted $ 0.10 $ (0.01 ) $ 0.21 $ 0.01
Weighted average shares outstanding:
Basic   57,038,021     50,284,362     55,900,306     48,015,577  
Diluted   58,369,083     50,284,362     57,469,918     50,331,002  
 
 
Paycom Software, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
       
Six Months Ended June 30,
2015 2014
Cash flows from operating activities
Net income $ 11,941 $ 467
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 4,420 3,401
Amortization of debt issuance costs 85 -
Amortization of debt discount - 74
Write off of debt issuance costs - 4,051
Net loss on disposition of property and equipment 15 -
Non-cash stock-based compensation 289 274
Net change of derivative liability - (1,107 )
Deferred taxes, net (230 ) 388
Changes in operating assets and liabilities:
Accounts receivable 242 799
Prepaid expenses (1,260 ) (132 )
Inventory (131 ) 59
Deposits and other assets (373 ) (93 )
Accounts payable (970 ) (2,400 )
Income taxes, net 2,866 135
Accrued commissions and bonuses (2,541 ) (2,019 )
Accrued payroll and vacation 3,382 405
Deferred revenue 3,698 2,719
Accrued expenses and other current liabilities   1,346     (1,128 )
Net cash provided by operating activities   22,779     5,893  
Cash flows from investing activities
Decrease in funds held for clients 117,750 140,150
Decrease in restricted cash 371 1
Purchases of property and equipment   (4,922 )   (9,278 )
Net cash provided by investing activities   113,199     130,873  
Cash flows from financing activities
Proceeds from issuance of long-term debt - 6,539
Principal payments on long-term debt (682 ) (65,207 )
Decrease in client funds obligation (117,750 ) (140,150 )
Proceeds from initial public offering, net of offering costs - 62,196
Payments of deferred offering costs - 645
Payment of debt issuance costs (23 ) -
Capital impact of reorganization   -     (183 )
Net cash used in financing activities   (118,455 )   (136,160 )
Change in cash and cash equivalents 17,523 606
Cash and cash equivalents
Beginning of period   25,144     13,362  
End of period $ 42,667   $ 13,968  
 
 
Paycom Software, Inc.
Breakout of Stock-Based Compensation Expense
(in thousands)
(unaudited)
                 
Three months ended June 30, Six months ended June 30,
2015 2014 2015 2014
Stock-based compensation expense:
Operating expenses $ 1 $ 11 $ 8 $ 15
Sales and marketing 1 154 6 157
Research and development 1 4 6 6
General and administrative   32   12     269   96
Total stock-based compensation expense $ 35 $ 181   $ 289 $ 274
 
 
Paycom Software, Inc.
Reconciliation of Net Income to EBITDA and Adjusted EBITDA
(in thousands)
(unaudited)
 
Three months ended June 30, Six months ended June 30,
2015 2014 2015 2014
Consolidated statements of income data:
Net income (loss) $ 5,946 $ (593 ) $ 11,941 $ 467
Interest expense 392 674 724 2,741
Provision (benefit) for income taxes 4,489 (444 ) 8,733 339
Depreciation and amortization   2,287   1,680     4,420   3,401
EBITDA 13,114 1,317 25,818 6,948
Stock-based compensation expense 35 181 289 274
Transaction expenses - 523 685 1,363
Net loss on early repayment of debt   -   4,044     -   4,044
Adjusted EBITDA $ 13,149 $ 6,065   $ 26,792 $ 12,629
 
 
Paycom Software, Inc.
Reconciliation of Net Income to Non-GAAP Net Income

(in thousands, except per share amounts)

(unaudited)
 
Three months ended June 30, Six months ended June 30,
2015 2014 2015 2014
Consolidated statements of income data:
Net income (loss) $ 5,946 $ (593 ) $ 11,941 $ 467
Tax adjusted stock-based compensation expense(1) 17 104 167 159
Tax adjusted transaction expenses(1) 84 299 591 790
Tax adjusted net loss on early repayment of debt(1)   -   2,313     -   2,343
Non-GAAP net income $ 6,047 $ 2,123   $ 12,699 $ 3,759
 
Non-GAAP net income per share, basic $ 0.11 $ 0.04 $ 0.23 $ 0.08
Non-GAAP net income per share, diluted $ 0.10 $ 0.04 $ 0.22 $ 0.07
 
Weighted average shares outstanding:
Basic 57,038,021 50,284,362 55,900,306 48,015,577
Diluted 58,369,083 52,269,300 57,469,918 50,331,002
 
(1) Beginning in 2015, we use an individual non-GAAP tax rate for each tax adjusted non-GAAP item to determine the amount of non-GAAP net income. Prior to 2015, we used an overall effective tax rate for each tax adjusted non-GAAP item to determine the amount of non-GAAP net income.

Contacts

Paycom Software, Inc.
Media Contact:
Kathy Oden-Hall, 800-580-4505
CMO
Kathy.Oden-Hall@paycom.com
or
Investor Relations Contact:
855-603-1620
investors@paycom.com

Release Summary

Paycom Software, Inc., today announced its financial results for the quarter ended June 30, 2015.

Contacts

Paycom Software, Inc.
Media Contact:
Kathy Oden-Hall, 800-580-4505
CMO
Kathy.Oden-Hall@paycom.com
or
Investor Relations Contact:
855-603-1620
investors@paycom.com