Summary
Paycom opened fiscal 2022 with revenue of $353.5 million for the quarter ended March 31, 2022, up 29.9% from the prior-year quarter. GAAP operating income rose 33.6% to $126.3 million. GAAP net income rose 42.3% to $91.9 million, and diluted EPS rose 42.3% to $1.58. Operating margin was 35.7%, up 1.0 percentage point. Operating cash flow rose 31.0% to $117.2 million. Capital expenditures rose 36.1% to $34.5 million. Deferred revenue rose 17.8% to $104.8 million. Management ties the top line to new clients, productivity gains in mature sales offices, additional applications sold to existing clients, tax forms filing, and a higher average funds held for clients balance.
On a non-GAAP basis, adjusted EBITDA was $170.1 million, up from $133.0 million a year earlier. Non-GAAP net income was $110.6 million, or $1.90 per diluted share, up from $85.9 million, or $1.47 per diluted share. Adjusted EBITDA margin was 48.1%, down from 48.9%. Recurring revenue of $348.2 million made up 98.5% of the total. CEO Chad Richison said employee usage continues to drive very strong revenue growth. He added that the go-to-market strategy and the messaging around easy-to-use, self-service solutions and automation are resonating.
Paycom added sales teams in Las Vegas, Jacksonville, New England and South Jersey in January 2022, bringing the total to 55 sales teams across 28 states. The target client range is 50 to 10,000 employees. Beti, launched in 2021, automates payroll by letting employees run their own payroll. No single client accounted for more than 0.5% of revenues in the first quarter of 2022. Seasonality cuts both ways: first and fourth quarter recurring revenue tends to run higher because of annual payroll tax filing forms and unscheduled payroll runs such as bonuses. Gross margins may move with hiring and seasonal patterns, though management expects them to stay relatively consistent.
Guidance covers the quarter ending June 30, 2022 and the year ending December 31, 2022, and addresses total revenues and adjusted EBITDA. Adjusted EBITDA is guided to a range of $111 million to $113 million for the June quarter and $533 million to $535 million for the full year. The company has not reconciled forward-looking adjusted EBITDA to net income, pointing to uncertainty around depreciation and amortization, interest, taxes, stock-based compensation and the change in fair value of its interest rate swap. The same limitation applies to forward-looking adjusted EBITDA margin, adjusted gross margin and the non-GAAP effective income tax rate.
Risks look familiar. The COVID-19 pandemic still creates uncertainty, and headcount swings among clients feed through to revenue because Paycom charges on a per-employee basis for certain services. Cybersecurity and data privacy breaches, network disruptions, competition, fast technological change, the challenge of managing rapid growth and dependence on key executives all sit on the list. Regulatory shifts, including possible changes to the Affordable Care Act, matter too, as does interest rate exposure on funds held for clients. Paycom is funding an expansion of its Oklahoma City headquarters expected to cost between $60 million and $70 million over roughly two years. Naming rights payments for the Oklahoma City arena escalate from $4.0 million in 2021 to $6.1 million in 2035. The company replaced its term loans with a new revolving credit facility, borrowed under it to repay those term loans, and still has $266.1 million available under a stock repurchase plan that runs through May 13, 2023.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q1 FY2022 | Q4 FY2021 | QoQ | Q1 FY2021 | YoY |
|---|---|---|---|---|---|
| Revenue | $353.5M | $285.0M | +24.0% | $272.2M | +29.9% |
| Gross profit | $305.0M | $238.5M | +27.9% | $235.9M | +29.3% |
| Gross margin | 86.3% | 83.7% | +2.6 pp | 86.7% | -0.4 pp |
| Research & development | $31.6M | $34.4M | -8.2% | $24.7M | +27.9% |
| Sales & marketing | $178.8M | $169.8M | +5.3% | $141.4M | +26.4% |
| General & administrative | $60.5M | $49.6M | +22.0% | $46.2M | +31.0% |
| Total operating expenses | $227.3M | $216.4M | +5.0% | $177.7M | +27.9% |
| Operating income (loss) | $126.3M | $68.6M | +84.0% | $94.5M | +33.6% |
| Operating margin | 35.7% | 24.1% | +11.6 pp | 34.7% | +1.0 pp |
| Net income (loss) | $91.9M | $48.7M | +88.8% | $64.6M | +42.3% |
| Net margin | 26.0% | 17.1% | +8.9 pp | 23.7% | +2.3 pp |
| Diluted EPS | $1.58 | $0.84 | +$0.74 | $1.11 | +$0.47 |
Risks
Because Paycom charges clients on a per-employee basis for certain services, headcount fluctuations tied to the ongoing COVID-19 pandemic directly affect recurring revenue. MD&A states the effect of the pandemic may not be fully reflected in results of operations and overall financial performance until future periods, even though total revenue was up 29.9% for the quarter ended March 31, 2022 versus the prior year quarter.
Recurring revenues are seasonal, with first and fourth quarter recurring revenues expected to be higher than other quarters. First quarter recurring revenues and margins were positively impacted by annual payroll tax form processing, and MD&A warns that historical results should not be considered a reliable indicator of future results.
Interest earned on funds held for clients can be positively or negatively impacted by changes in interest rates, and a higher average funds held balance in the quarter ended March 31, 2022 increased interest income. The floating-to-fixed interest rate swap is not designated as a hedge, so fair value changes (a $1.3 million gain in the current quarter) flow through Other income (expense), net.
Sales and marketing, research and development and general and administrative expenses all increased in the quarter, and MD&A generally expects research and development expenses to continue to increase on an absolute dollar basis and as a percentage of total revenues. General and administrative expenses rose $14.3 million, including $5.7 million associated with additional paid time off and benefits awarded to employees.
Paycom depends on its key executives and must attract and retain qualified personnel, including software developers and skilled IT, sales, marketing and operational personnel, to support its rapid growth and geographic expansion.
The HCM industry is driven in part by legislation and regulatory action, and the company flags the possibility that the Affordable Care Act may be modified, repealed or declared unconstitutional, which could affect demand for its compliance-related applications.
Capital expenditures were up 36.1% to $34.5 million in the quarter ended March 31, 2022 versus the prior year quarter. The corporate headquarters expansion is estimated to cost $60 million to $70 million over roughly two years, and naming rights payments escalate annually from $4.0 million in 2021 to $6.1 million in 2035.
The company cites its ability to develop enhancements and new applications, keep pace with technological developments and respond to future disruptive technologies, as well as its ability to compete effectively, as factors that could cause results to differ materially from forward-looking statements.
SaaS KPIs
All quarters →Adjusted EBITDA margin
Adjusted gross margin
Summary, forecast, risks and KPIs are extracted from Paycom Software, Inc.'s SEC filings for Q1 FY2022 (10-Q / 10-K and the 8-K earnings release); GAAP figures in the summary are checked against the reported XBRL data. They can contain errors; the filings are authoritative. Processed Oct 2, 2026.