Summary
Paycom Software reported first quarter fiscal 2023 total revenues of $451.6 million for the three months ended March 31, 2023, up 27.8% from $353.5 million in the prior-year quarter. Recurring revenues of $444.4 million rose 27.6% and represented 98.4% of the total. Implementation and other revenue increased 34.8% to $7.2 million, helped by higher non-refundable upfront conversion fees from new clients. Management credited new client additions, productivity gains in sales offices open at least 24 months, and additional applications sold into the existing base. Annual tax form filing and interest earned on a larger balance of client funds also contributed. No single client accounted for more than one-half of one percent of revenue, so the growth was broad.
Profitability kept pace. GAAP net income was $119.3 million for the quarter, up 29.8% from $91.9 million a year earlier, and diluted earnings per share of $2.06 rose 30.4% from $1.58. Operating income was $160.4 million, up 27.1%. Operating margin came in at 35.5%, down 0.2 percentage points from 35.7% in the prior-year quarter, a reminder that spending is climbing alongside sales. Sales and marketing expense rose 38.1% to $103.6 million on higher employee-related costs and a $7.2 million increase in marketing and advertising. Cost of revenues operating expenses increased 37.9% to $53.1 million. Research and development expense of $42.7 million was up 35.0%, and capitalized research and development costs of $21.4 million rose 39%, lifting total research and development costs to $64.0 million.
The non-GAAP picture was similarly strong. Non-GAAP net income was $142.7 million, or $2.46 per diluted share, against $110.6 million, or $1.90, a year ago. Adjusted EBITDA was $220.5 million versus $170.1 million, with adjusted EBITDA margin of 48.8%. Non-cash stock-based compensation expense of $27.8 million is the biggest bridge item between GAAP and non-GAAP profit.
Cash generation and the balance sheet support the new capital return plan. Operating cash flow was $146.1 million for the quarter, up 24.6% from $117.2 million. Capital expenditures were $40.6 million, up 17.8%, much of it tied to the headquarters expansion, which management estimates will cost between $70 million and $75 million and be finished in the first half of 2024. Deferred revenue was $120.8 million at March 31, 2023, up 15.3% from $104.8 million a year earlier. Cash and cash equivalents totaled $505.6 million at March 31, 2023 compared with $400.7 million at December 31, 2022, and total debt was $29.0 million at both dates.
Paycom's board adopted a dividend policy in May 2023. The company intends to pay quarterly cash dividends at an annual rate of $1.50, or $0.375 per share, beginning in the second quarter of 2023, with roughly $91 million payable annually. Paycom also repurchased 1,923 shares during the quarter at an average cost of $325.37, all withheld to cover employee tax obligations, leaving $1.1 billion available under a stock repurchase plan that runs to August 15, 2024.
Paycom issued guidance for the second quarter of 2023 and for the full year 2023. For the second quarter, it guided to adjusted EBITDA of $152 million to $154 million. For the full year, it guided to adjusted EBITDA of $717 million to $719 million. A total revenue outlook was also provided for both periods. Paycom did not reconcile the forward-looking adjusted EBITDA ranges to net income, citing uncertainty around depreciation, interest, taxes and stock-based compensation.
The 10-Q repeats a familiar list of risks: cyberattacks and security vulnerabilities, data privacy compliance, competition, dependence on key executives, hiring and retention of technical and sales staff, adverse economic and market conditions including geopolitical conflicts, and reliance on third parties. Seasonality matters as well. First and fourth quarter recurring revenue typically runs ahead of other quarters because of annual tax form processing and unscheduled payroll runs, which flatters the first quarter margin.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q1 FY2023 | Q4 FY2022 | QoQ | Q1 FY2022 | YoY |
|---|---|---|---|---|---|
| Revenue | $451.6M | $370.6M | +21.9% | $353.5M | +27.8% |
| Gross profit | $386.4M | $311.5M | +24.0% | $305.0M | +26.7% |
| Gross margin | 85.6% | 84.1% | +1.5 pp | 86.3% | -0.7 pp |
| Research & development | $42.7M | $39.6M | +7.8% | $31.6M | +35.0% |
| Sales & marketing | $226.0M | $205.7M | +9.9% | $178.8M | +26.4% |
| General & administrative | $65.6M | $60.0M | +9.3% | $60.5M | +8.4% |
| Total operating expenses | $291.2M | $264.8M | +10.0% | $227.3M | +28.1% |
| Operating income (loss) | $160.4M | $105.8M | +51.6% | $126.3M | +27.1% |
| Operating margin | 35.5% | 28.6% | +7.0 pp | 35.7% | -0.2 pp |
| Net income (loss) | $119.3M | $80.0M | +49.2% | $91.9M | +29.8% |
| Net margin | 26.4% | 21.6% | +4.8 pp | 26.0% | +0.4 pp |
| Diluted EPS | $2.06 | $1.37 | +$0.69 | $1.58 | +$0.48 |
Risks
The company announced on May 2, 2023 a newly adopted dividend policy with an initial rate of $0.375 per share per quarter (roughly $91 million annually beginning in Q2 2023). The filing states it may not continue to pay dividends or pay at the same rate, since payments are at the Board's discretion and subject to financial results and the availability of statutory surplus.
Recurring revenue benefited from rising interest rates and a higher average funds held for clients balance during the three months ended March 31, 2023, but the filing notes the amount of interest earned can be positively or negatively impacted by changes in interest rates, tying part of the revenue increase to rate-driven income on client funds.
Interest expense increased 289.3% for the three months ended March 31, 2023 versus the prior year period, which the filing attributes to the timing of entering the July 2022 Credit Agreement on July 29, 2022; that agreement also imposes a consolidated interest coverage ratio of not less than 3.0 to 1.0 and a leverage ratio cap of 3.75 to 1.0 stepping down to 3.0 to 1.0, with $29.0 million outstanding under the revolving facility as of March 31, 2023.
Total operating expenses rose 28.1% for the three months ended March 31, 2023 versus the prior year period, driven by a 38.1% increase in sales and marketing and a 35.0% increase in research and development; the filing states growing the business will continue to require substantial investments and higher headcount, keeping research and development expense expected to increase on an absolute basis and as a percentage of total revenues.
Revenues are seasonal, with first and fourth quarter recurring revenues typically higher than other quarters due to annual payroll tax and ACA form filing (Form W-2, 1099, 1095) and unscheduled payroll runs; the filing cautions that historical results affected by these seasonal trends should not be considered a reliable indicator of future results and that seasonality can also affect gross profits.
SaaS KPIs
All quarters →Adjusted EBITDA margin
Adjusted EBITDA
Adjusted gross margin
Non-GAAP Net Income
Non-GAAP Net Income per Diluted Share
Recurring revenues
Summary, forecast, risks and KPIs are extracted from Paycom Software, Inc.'s SEC filings for Q1 FY2023 (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.