Paycom Software, Inc. Reports First Quarter 2017 Results

First-ever quarter of more than $100 million in revenues

First Quarter Revenues of $119.5 million, up 33% from comparable prior year period

First Quarter GAAP Net Income of $26 million, or $0.43 per diluted share, up 38% from comparable prior year period

First Quarter Adjusted EBITDA of $47 million, up 42% from comparable prior year period

First Quarter non-GAAP Net Income of $28 million, or $0.47 per diluted share, up 43% from comparable prior year period

OKLAHOMA CITY--()--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 March 31, 2017.

“We continue to execute at high levels across our organization and as a result we are helping more companies than ever run their businesses more efficiently with our cloud-based payroll and human capital management solution," said Paycom's founder and CEO, Chad Richison. "We hit a huge milestone with our quarterly revenue surpassing the $100 million mark, furthering our optimism for continued momentum and success throughout the year.”

Financial Highlights for the First Quarter of 2017

Total Revenues of $119.5 million represented a 33% increase compared to total revenues of $90.1 million in the same period last year. Recurring revenues of $118 million increased 33% from the comparable prior year period, and constituted 99% of total revenues.

GAAP Net Income was $26 million, or $0.43 per diluted share, compared to GAAP net income of $19 million, or $0.31 per diluted share, in the same period last year.

Adjusted EBITDA1 was $47 million, compared to $33 million in the same period last year.

Non-GAAP Net Income1 was $28 million, or $0.47 per diluted share, compared to $19 million, or $0.33 per diluted share, in the same period last year.

Cash and Cash Equivalents were $93 million as of March 31, 2017.

Total Debt was $32 million as of March 31, 2017. 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 June 30, 2017 and the year ending December 31, 2017:

Quarter Ending June 30, 2017

Total Revenues in the range of $94.5 million to $96.5 million.

Adjusted EBITDA in the range of $22.0 million to $24.0 million.

Year Ending December 31, 2017

Total Revenues in the range of $426.0 million to $428.0 million.

Adjusted EBITDA in the range of $117.0 million to $119.0 million.

We have not reconciled the Adjusted EBITDA ranges for the quarter ending June 30, 2017 or the year ending December 31, 2017 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. Management uses Adjusted EBITDA and non-GAAP net income as supplemental measures to review and assess the performance of our core business operations and for planning purposes. We define: (i) Adjusted EBITDA as net income plus interest expense, taxes, depreciation and amortization, and non-cash stock-based compensation expense; and (ii) non-GAAP net income as net income plus non-cash stock-based compensation expense, 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 management in its financial and operational decision-making. We believe these metrics are useful to investors because they facilitate comparisons of our core business operations across periods on a consistent basis, as well as comparisons with the results of peer companies, many of which use similar non-GAAP financial measures to supplement results under GAAP. In addition, Adjusted EBITDA is a measure that provides useful information to management about the amount of cash available for reinvestment in our business, repurchasing common stock and other purposes. Management believes that the non-GAAP measures presented in this press release, when viewed in combination with our results prepared in accordance with GAAP, provide a more complete understanding of the factors and trends affecting our business and performance.

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, May 2, 2017, at 5:00 p.m. Eastern time to discuss its financial results. To access this call, dial (877) 201-0168 (domestic) or (647) 788-4901 (international) and enter conference ID 98121690. 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 (800) 585-8367 (domestic) or (416) 621-4642 (international) until May 9, 2017. The replay passcode is 98121690.

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 serves clients in all 50 states from sales offices across the country.

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 refer to the Company’s estimated or anticipated results, other non-historical facts or 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, dividends 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 revenues generated by certain applications; the impact of future regulatory, judicial, or legislative changes; how certain factors affecting our performance correlate to improvement 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 expand our corporate headquarters within an expected timeframe; our plans regarding our capital expenditures and investment activity as our business grows, including with respect to research and development; our expected income tax rate for future periods; and our plans to purchase shares of our common stock through a stock repurchase plan. In addition, forward-looking statements also consist of statements involving trend analyses and statements including such words as “anticipate,” “believe,” “could,” “expect,” “may,” “might,” “plan,” “possible,” “potential,” “project,” “should,” “would,” 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 could 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 but not limited to those discussed in our Annual Report on Form 10-K for the year ended December 31, 2016. We do not undertake any obligation to update or revise the forward-looking statements to reflect events or circumstances that exist after the date on which such statements were made, except to the extent required by law.

 
 
Paycom Software, Inc.
Consolidated Balance Sheets
(in thousands, except share amounts)
(unaudited)
       
March 31, December 31,
2017 2016
Assets
Current assets:
Cash and cash equivalents $ 92,915 $ 60,158
Accounts receivable 1,847 1,339
Prepaid expenses 5,413 4,475
Inventory 499 675
Income tax receivable       692  
Current assets before funds held for clients 100,674 67,339
Funds held for clients   950,980     858,244  
Total current assets 1,051,654 925,583
Property and equipment, net 106,485 96,848
Deposits and other assets 1,369 1,215
Goodwill 51,889 51,889
Intangible assets, net 1,468 1,871
Deferred income tax assets, net   5,687     1,207  
Total assets $ 1,218,552   $ 1,078,613  
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 3,134 $ 3,737
Income tax payable 16,577
Accrued commissions and bonuses 2,726 8,003
Accrued payroll and vacation 7,688 4,769
Deferred revenue 5,611 5,230
Current portion of long-term debt 1,126 1,113
Accrued expenses and other current liabilities   17,587     17,798  
Current liabilities before client funds obligation 54,449 40,650
Client funds obligation   950,980     858,244  
Total current liabilities 1,005,429 898,894
Long-term deferred revenue 36,555 34,481
Net long-term debt, less current portion   30,389     28,711  
Total long-term liabilities   66,944     63,192  
Commitments and contingencies
Stockholders' equity:
Common stock, $0.01 par value (100,000,000 shares authorized; 58,471,563 and 58,453,283

shares issued at March 31, 2017 and December 31, 2016, respectively; 57,349,302 and

57,331,022 shares outstanding at March 31, 2017 and December 31, 2016, respectively)

585 585
Additional paid-in capital 99,490 95,452
Retained earnings 96,062 70,448
Treasury stock, at cost (1,122,261 shares at March 31, 2017 and December 31, 2016)   (49,958 )   (49,958 )
Total stockholders' equity   146,179     116,527  
Total liabilities and stockholders' equity $ 1,218,552   $ 1,078,613  
 
 
Paycom Software, Inc.
Consolidated Statements of Income
(in thousands, except per share and share amounts)
(unaudited)
       
Three Months Ended March 31,
2017 2016
Revenues
Recurring $ 117,914 $ 88,904
Implementation and other   1,594     1,222  
Total revenues   119,508     90,126  
Cost of revenues
Operating expenses 15,086 10,785
Depreciation and amortization   2,060     1,186  
Total cost of revenues   17,146     11,971  
Administrative expenses
Sales and marketing 36,848 28,662
Research and development 6,797 3,860
General and administrative 17,826 15,206
Depreciation and amortization   2,226     1,723  
Total administrative expenses   63,697     49,451  
Total operating expenses   80,843     61,422  
Operating income 38,665 28,704
Interest expense (257 ) (311 )
Other income, net   95     34  
Income before income taxes 38,503 28,427
Provision for income taxes   12,889     9,839  
Net income $ 25,614   $ 18,588  
Earnings per share, basic $ 0.44 $ 0.32
Earnings per share, diluted $ 0.43 $ 0.31
Weighted average shares outstanding:
Basic   57,307,187     57,132,909  
Diluted   58,525,980     58,362,040  
 
 
Paycom Software, Inc.
Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
 
    Three Months Ended March 31,
2017     2016
Cash flows from operating activities
Net income $ 25,614 $ 18,588
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 4,286 2,909
Amortization of debt issuance costs 23 32
Stock-based compensation expense 3,625 1,223
Deferred income taxes, net (4,480 ) (3,644 )
Changes in operating assets and liabilities:
Accounts receivable (508 ) (226 )
Prepaid expenses (938 ) (1,262 )
Inventory 176 423
Deposits and other assets (154 ) 420
Accounts payable (1,349 ) (1,170 )
Income taxes, net 17,269 13,325
Accrued commissions and bonuses (5,277 ) (6,903 )
Accrued payroll and vacation 2,919 2,339
Deferred revenue 2,455 1,783
Accrued expenses and other current liabilities   (3,436 )   2,111  
Net cash provided by operating activities   40,225     29,948  
Cash flows from investing activities
Increase in funds held for clients (92,736 ) (428,916 )
Purchases of property and equipment   (9,136 )   (8,363 )
Net cash used in investing activities   (101,872 )   (437,279 )
Cash flows from financing activities
Proceeds from issuance of long-term debt 2,093
Principal payments on long-term debt (282 ) (224 )
Increase in client funds obligation 92,736 428,916
Payment of debt issuance costs   (143 )    
Net cash provided by financing activities   94,404     428,692  
Net increase in cash and cash equivalents 32,757 21,361
Cash and cash equivalents
Beginning of period   60,158     50,714  
End of period $ 92,915   $ 72,075  
 
 
Paycom Software, Inc.
Reconciliation of GAAP to non-GAAP Financial Measures
(in thousands)
(unaudited)
       
Three months ended March 31,
2017 2016
Net income to Adjusted EBITDA:
Net income $ 25,614 $ 18,588
Interest expense 257 311
Provision for income taxes 12,889 9,839
Depreciation and amortization   4,286     2,909  
EBITDA 43,046 31,647
Non-cash stock-based compensation expense   3,688     1,353  
Adjusted EBITDA $ 46,734   $ 33,000  
 
 
Three months ended March 31,
2017 2016
Net income to non-GAAP net income:
Net income $ 25,614 $ 18,588
Non-cash stock-based compensation expense 3,688 1,353
Income tax effect on non-GAAP adjustment   (1,596 )   (504 )
Non-GAAP net income $ 27,706   $ 19,437  
 
Weighted average shares outstanding:
Basic 57,307,187 57,132,909
Diluted 58,525,980 58,362,040
 
Earnings per share, basic $ 0.44 $ 0.32
Earnings per share, diluted $ 0.43 $ 0.31
Non-GAAP net income per share, basic $ 0.48 $ 0.34
Non-GAAP net income per share, diluted $ 0.47 $ 0.33
 
 
Three months ended March 31,
2017 2016
Earnings per share to non-GAAP net income per share, basic:
Earnings per share, basic $ 0.44 $ 0.32
Non-cash stock-based compensation expense 0.07 0.02
Income tax effect on non-GAAP adjustment   (0.03 )    
Non-GAAP net income per share, basic $ 0.48   $ 0.34  
 
 
Three months ended March 31,
2017 2016
Earnings per share to non-GAAP net income per share, diluted:
Earnings per share, diluted $ 0.43 $ 0.31
Non-cash stock-based compensation expense 0.07 0.02
Income tax effect on non-GAAP adjustment   (0.03 )    
Non-GAAP net income per share, diluted $ 0.47   $ 0.33  
 
 
Three months ended March 31,
2017 2016
Adjusted gross profit:
Total revenues $ 119,508 $ 90,126
Less: Total cost of revenues   (17,146 )   (11,971 )
Total gross profit 102,362 78,155
Plus: Non-cash stock-based compensation expense   491     113  
Total adjusted gross profit $ 102,853 $ 78,268
Total gross profit % 86 % 87 %
Total adjusted gross profit % 86 % 87 %
 
 
Three months ended March 31,
2017 2016
Adjusted sales and marketing expenses:
Sales and marketing expenses $ 36,848 $ 28,662
Less: Non-cash stock-based compensation expense   (933 )   (277 )
Total adjusted sales and marketing expenses $ 35,915 $ 28,385
 
 
Three months ended March 31,
2017 2016
Adjusted administrative expenses:
Administrative expenses $ 63,697 $ 49,451
Less: Non-cash stock-based compensation expense   (3,197 )   (1,240 )
Total adjusted administrative expenses $ 60,500 $ 48,211
 
 
Three months ended March 31,
2017 2016
Adjusted research and development expenses:
Research and development expenses $ 6,797 $ 3,860
Less: Non-cash stock-based compensation expense   (159 )   (49 )
Total adjusted research and development expenses $ 6,638 $ 3,811
 
 
Three months ended March 31,
2017 2016
Total research and development costs:
Capitalized research and development costs $ 2,876 $ 1,746
Research and development expenses   6,797     3,860  
Total research and development costs $ 9,673   $ 5,606  
 
Total revenues $ 119,508 $ 90,126
Total research and development costs as a % of total revenues 8.1 % 6.2 %
 
Total adjusted total research and development costs:
Total research and development costs $ 9,673 $ 5,606
Less: Capitalized non-cash stock-based compensation (349 ) (109 )
Less: Non-cash stock-based compensation expense   (159 )   (49 )
Total adjusted research and development costs $ 9,165   $ 5,448  
 
Total revenues $ 119,508 $ 90,126
Total adjusted research and development costs as a % of total revenues 7.7 % 6.0 %
 
 
Paycom Software, Inc.
Breakout of Non-Cash Stock-Based Compensation Expense
(in thousands)
(unaudited)
 
Three months ended March 31,
2017 2016
Non-cash stock-based compensation expense:
Operating expenses $ 491 $ 113
Sales and marketing 933 277
Research and development 159 49
General and administrative   2,105     914  
Total non-cash stock-based compensation expense $ 3,688   $ 1,353  
 

Contacts

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

Contacts

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