Paycom Software, Inc. Reports Record Second Quarter 2016 Revenue Growth

Record Second Quarter Revenue of $73.9 million, up 51% from comparable prior year period

Record Second Quarter GAAP Net Income of $10.4 million, up 75% from comparable prior year period, or $0.18 per diluted share

Record Second Quarter Adjusted EBITDA of $22.6 million, up 72% from comparable prior year period

Record Second Quarter non-GAAP Net Income of $12.4 million, or $0.21 per diluted share

OKLAHOMA CITY--(BUSINESS WIRE)--Paycom Software, Inc. (“Paycom”) (NYSE: PAYC), a leading provider of comprehensive, cloud-based human capital management software, today announced its financial results for the quarter ended June 30, 2016.

“We once again achieved record second quarter revenue growth of 51% as our sales teams continued to execute, helping companies run more efficiently and better manage their workforces all through the Paycom solution,” said Chad Richison, Paycom founder and CEO. “This strong sales performance, coupled with cost efficiencies across our organization, drove increased cash flow and earnings. With our ability to quickly evolve our solution to meet complex regulatory requirements and the continued maturity of our professional sales representatives, we believe we are well positioned to sustain our momentum in the second half of 2016.”

Financial Highlights for the Second Quarter of 2016

Total Revenue of $73.9 million represented a 51% increase compared to total revenue of $49.0 million in the same period last year. Recurring revenues of $72.5 million increased 52% from the comparable prior year period, and constituted 98% of total revenues.

GAAP Net Income was $10.4 million, or $0.18 per diluted share, compared to GAAP net income of $5.9 million, or $0.10 per diluted share, in the same period last year.

Adjusted EBITDA¹ was $22.6 million, compared to $13.1 million in the same period last year.

Non-GAAP Net Income¹ was $12.4 million, or $0.21 per diluted share, compared to $6.0 million, or $0.10 per diluted share, in the same period last year.

Cash and Cash Equivalents were $80.9 million as of June 30, 2016.

Total Debt was $29.3 million as of June 30, 2016. This debt consisted solely of debt on our 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, 2016 and year ending December 31, 2016:

Quarter Ending September 30, 2016

Total Revenues in the range of $75 million to $77 million.

Adjusted EBITDA in the range of $13 million to $15 million.

Year Ending December 31, 2016

Total Revenues in the range of $325 million to $327 million.

Adjusted EBITDA in the range of $83 million to $85 million.

We have not reconciled the Adjusted EBITDA ranges for the quarter ending September 30, 2016 or the year ending December 31, 2016 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, non-cash 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 before gains, losses or other changes that our management considers to be outside of our core business operating results and for planning purposes. We define: (i) Adjusted EBITDA as net income plus interest expense, taxes, depreciation and amortization, non-cash stock-based compensation expense and certain transaction expenses that are not core to our operations; and (ii) non-GAAP net income as net income plus non-cash stock-based compensation expense and certain transaction expenses that are not core to our operations, each of which is adjusted for the effect of income taxes. Adjusted EBITDA and non-GAAP net income are metrics that provide investors with greater transparency to the information used by our management in its financial and operational decision-making. We believe these metrics are useful to investors because they provide period-to-period comparisons of the results of our continuing operations, and facilitate comparison with other peer companies, many of which use similar non-GAAP financial measures to supplement results under GAAP. In addition, EBITDA and Adjusted EBITDA are measures that provide useful information to management about the amount of cash available for reinvestment in our business, repurchasing common stock and other purposes.

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 or non-GAAP net income in isolation, or as a substitute for net income or other 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 2, 2016, at 5:00 p.m. Eastern time to discuss its financial results. To access this call, dial [phone] (domestic) or [phone] (international) and enter conference ID 43058074. A live webcast as well as the replay of the conference call will be available on the Investor Relations page of Paycom’s website at investors.paycom.com. A replay of this conference call can also be accessed by dialing [phone] (domestic) or [phone] (international) until August 16, 2016. The replay passcode is 43058074.

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 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 has the ability to serve businesses of all sizes and in every industry. As one of the leading human capital management providers, Paycom has sales offices across the country and serves clients in all 50 states.

Forward-Looking Statements

Certain statements in this press release are, and certain statements on the related teleconference call may be, forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are any statements that look to future events and include, but are not limited to, statements regarding our business strategy; anticipated future operating results and operating expenses, cash flows, capital resources and liquidity; trends, opportunities and risks affecting our business, industry and financial results; future expansion or growth plans and potential for future growth; our ability to attract new clients to purchase our solution; our ability to retain clients and induce them to purchase additional applications; our ability to accurately forecast future revenues and appropriately plan our expenses; market acceptance of our solution and applications; our expectations regarding future revenue generated by certain applications, including Enhanced ACA; the impact of future regulatory, judicial, or legislative changes; how certain factors affecting our performance correlate to improvements or deterioration in the labor market; our plan to open additional sales offices and our ability to effectively execute such plan; the sufficiency of our existing cash and cash equivalents to meet our working capital and capital expenditure needs over the next 12 months; our ability to create additional jobs at our corporate headquarters; our ability to expand our corporate headquarters within an expected timeframe; our expectation of increasing our capital expenditures and investment activity as our business grows; our plans to purchase shares of our common stock through a stock repurchase plan; and how the vesting of restricted stock affects the number of shares used for calculating earnings per share. In addition, forward-looking statements also consist of statements involving trend analyses and statements including such words as “may,” “believe,” “could,” “anticipate,” “should,” “would,” “might,” “plan,” “expect,” “potential,” “possible,” “project,” and similar expressions or the negative of such terms or other comparable terminology. These forward-looking statements speak only as of the date hereof and are subject to business and economic risks. As such, our actual results may differ materially from those set forth in the forward-looking statements as a result of the factors discussed in our filings with the Securities and Exchange Commission, including those discussed in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2016 and our Annual Report on Form 10-K for the year ended December 31, 2015. We undertake 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.
Consolidated Balance Sheets
(in thousands, except share amounts)
(unaudited)
	June 30,			December 31,
		2016			2015
Assets
Current assets:
Cash and cash equivalents	$	80,893		$	50,714
Accounts receivable		2,775			2,354
Prepaid expenses		4,136			3,531
Inventory		441			1,093
Income tax receivable		-			6,743
Current assets before funds held for clients		88,245			64,435
Funds held for clients		1,034,314			696,703
Total current assets		1,122,559			761,138
Property and equipment, net		76,627			58,858
Deposits and other assets		936			1,286
Goodwill		51,889			51,889
Intangible assets, net		2,677			3,484
Deferred income tax assets, net		4,295			-
Total assets	$	1,258,983		$	876,655
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	5,530		$	4,899
Income tax payable		5,371			-
Accrued commissions and bonuses		3,052			8,687
Accrued payroll and vacation		6,538			2,898
Deferred revenue		4,389			3,726
Current portion of long-term debt		911			886
Accrued expenses and other current liabilities		12,392			9,735
Current liabilities before client funds obligation		38,183			30,831
Client funds obligation		1,034,314			696,703
Total current liabilities		1,072,497			727,534
Deferred income tax liabilities, net		-			641
Long-term deferred revenue		29,322			25,310
Net long-term debt, less current portion		28,349			24,856
Total long-term liabilities		57,671			50,807
Commitments and contingencies
Stockholders' equity:
Common stock, $0.01 par value (100,000,000 shares authorized, 57,624,163 and 57,119,873 shares issued at June 30, 2016 and December 31, 2015, respectively; 57,539,034 and 57,119,873 shares outstanding at June 30, 2016 and December 31, 2015, respectively)		576			571
Additional paid in capital		76,112			71,135
Retained earnings		55,617			26,608
Treasury stock, at cost (85,129 and 0 shares at June 30, 2016 and December 31, 2015, respectively)		(3,490	)		-
Total stockholders' equity		128,815			98,314
Total liabilities and stockholders' equity	$	1,258,983		$	876,655

Paycom Software, Inc.
Consolidated Statements of Income
(in thousands, except per share and share amounts)
(unaudited)
	Three Months Ended June 30,						Six Months Ended June 30,
		2016			2015			2016			2015
Revenues
Recurring	$	72,492		$	47,820		$	161,396		$	102,171
Implementation and other		1,388			1,153			2,610			2,024
Total revenues		73,880			48,973			164,006			104,195
Cost of revenues
Operating expenses		10,479			7,134			21,264			14,605
Depreciation and amortization		1,386			887			2,572			1,697
Total cost of revenues		11,865			8,021			23,836			16,302
Administrative expenses
Sales and marketing		24,766			16,741			53,428			37,970
Research and development		4,202			1,907			8,062			3,774
General and administrative		15,220			10,096			30,426			22,080
Depreciation and amortization		1,823			1,400			3,546			2,723
Total administrative expenses		46,011			30,144			95,462			66,547
Total operating expenses		57,876			38,165			119,298			82,849
Operating income		16,004			10,808			44,708			21,346
Interest expense		(170	)		(392	)		(481	)		(724	)
Other income, net		116			19			150			52
Income before income taxes		15,950			10,435			44,377			20,674
Provision for income taxes		5,529			4,489			15,368			8,733
Net income	$	10,421		$	5,946		$	29,009		$	11,941
Earnings per share, basic	$	0.18		$	0.10		$	0.50		$	0.21
Earnings per share, diluted	$	0.18		$	0.10		$	0.49		$	0.21
Weighted average shares outstanding:
Basic		57,591,556			57,038,021			57,362,232			55,900,306
Diluted		58,697,229			58,369,083			58,707,213			57,469,918

Paycom Software, Inc.
Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
	Six Months Ended June 30,
		2016			2015
Cash flows from operating activities
Net income	$	29,009		$	11,941
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		6,118			4,420
Amortization of debt issuance costs		63			85
Net loss on disposition of property and equipment		3			15
Stock-based compensation expense		4,817			289
Deferred income taxes, net		(4,936	)		(230	)
Changes in operating assets and liabilities:
Accounts receivable		(421	)		242
Prepaid expenses		(605	)		(1,260	)
Inventory		652			(131	)
Deposits and other assets		350			(373	)
Accounts payable		2,619			(970	)
Income taxes, net		12,114			2,866
Accrued commissions and bonuses		(5,635	)		(2,541	)
Accrued payroll and vacation		3,640			3,382
Deferred revenue		4,675			3,698
Accrued expenses and other current liabilities		2,091			1,346
Net cash provided by operating activities		54,554			22,779
Cash flows from investing activities
(Increase) decrease in funds held for clients		(337,611	)		117,750
Decrease in restricted cash		-			371
Purchases of property and equipment		(24,340	)		(4,922	)
Net cash (used in) provided by investing activities		(361,951	)		113,199
Cash flows from financing activities
Proceeds from issuance of long-term debt		3,903			-
Repurchases of common stock		(3,490	)		-
Principal payments on long-term debt		(448	)		(682	)
Increase (decrease) in client funds obligation		337,611			(117,750	)
Payment of debt issuance costs		-			(23	)
Net cash provided by (used in) financing activities		337,576			(118,455	)
Change in cash and cash equivalents		30,179			17,523
Cash and cash equivalents
Beginning of period		50,714			25,144
End of period	$	80,893		$	42,667

Paycom Software, Inc.
Breakout of Non-Cash Stock-Based Compensation Expense
(in thousands)
(unaudited)
	Three months ended June 30,				Six months ended June 30,
		2016		2015		2016		2015
Non-cash stock-based compensation expense:
Operating expenses	$	301	$	1	$	414	$	8
Sales and marketing		792		1		1,069		6
Research and development		131		1		180		6
General and administrative		2,045		32		2,959		269
Total non-cash stock-based compensation expense	$	3,269	$	35	$	4,622	$	289

Paycom Software, Inc.
Reconciliation of GAAP to non-GAAP Financial Measures
(in thousands)
(unaudited)
	Three months ended June 30,						Six months ended June 30,
		2016			2015			2016			2015
Net income to Adjusted EBITDA:
Net income	$	10,421		$	5,946		$	29,009		$	11,941
Interest expense		170			392			481			724
Provision for income taxes		5,529			4,489			15,368			8,733
Depreciation and amortization expense		3,209			2,287			6,118			4,420
EBITDA		19,329			13,114			50,976			25,818
Non-cash stock-based compensation expense		3,269			35			4,622			289
Transaction expenses		-			-			-			685
Adjusted EBITDA	$	22,598		$	13,149		$	55,598		$	26,792
	Three months ended June 30,						Six months ended June 30,
		2016			2015			2016			2015
Net income to non-GAAP net income
Net income	$	10,421		$	5,946		$	29,009		$	11,941
Non-cash stock-based compensation expense		3,269			35			4,622			289
Transaction expenses		-			-			-			685
Income tax effect on non-GAAP adjustments		(1,258	)		66			(1,762	)		(216	)
Non-GAAP net income	$	12,432		$	6,047		$	31,869		$	12,699
Non-GAAP net income per share, basic	$	0.22		$	0.11		$	0.56		$	0.23
Non-GAAP net income per share, diluted	$	0.21		$	0.10		$	0.54		$	0.22
Weighted average shares outstanding:
Basic		57,591,556			57,038,021			57,362,232			55,900,306
Diluted		58,697,229			58,369,083			58,707,213			57,469,918
	Three months ended June 30,						Six months ended June 30,
		2016			2015			2016			2015
Adjusted gross profit:
Total revenues	$	73,880		$	48,973		$	164,006		$	104,195
Less: Total cost of revenues		(11,865	)		(8,021	)		(23,836	)		(16,302	)
Plus: Non-cash stock-based compensation expense		301			1			414			8
Total adjusted gross profit	$	62,316		$	40,953		$	140,584		$	87,901
Total adjusted gross profit %		84	%		84	%		86	%		84	%
	Three months ended June 30,						Six months ended June 30,
		2016			2015			2016			2015
Adjusted sales and marketing expenses:
Sales and marketing expenses	$	24,766		$	16,741		$	53,428		$	37,970
Less: Non-cash stock-based compensation expense		(792	)		(1	)		(1,069	)		(6	)
Total adjusted sales and marketing expenses	$	23,974		$	16,740		$	52,359		$	37,964
	Three months ended June 30,						Six months ended June 30,
		2016			2015			2016			2015
Adjusted research and development expenses:
Research and development expenses	$	4,202		$	1,907		$	8,062		$	3,774
Less: Non-cash stock-based compensation expense		(131	)		(1	)		(180	)		(6	)
Total adjusted research and development expenses	$	4,071		$	1,906		$	7,882		$	3,768
	Three months ended June 30,						Six months ended June 30,
		2016			2015			2016			2015
Adjusted administrative expenses:
Administrative expenses	$	46,011		$	30,144		$	95,462		$	66,547
Less: Transaction expenses		-			-			-			(685	)
Less: Non-cash stock-based compensation expense		(2,968	)		(34	)		(4,208	)		(281	)
Total adjusted administrative expenses	$	43,043		$	30,110		$	91,254		$	65,581