Summary
Paycom Software started fiscal 2024 with first quarter revenue of $499.9 million, up 10.7% from $451.6 million in the same period a year earlier. Recurring revenue reached $491.9 million and represented 98.4% of the total. GAAP net income rose 107.2% to $247.2 million, or $4.37 per diluted share, from $119.3 million, or $2.06 per diluted share. Operating income increased 78.2% to $285.8 million from $160.4 million, and operating margin expanded to 57.2% from 35.5%.
Those headline gains need context. A $117.5 million benefit to general and administrative expenses from the forfeiture of the 2020 CEO performance award, tied to Chad Richison's move into the Co-CEO role, drove most of the profit swing. Non-GAAP net income, which excludes stock-based compensation, was $146.6 million, or $2.59 per diluted share, compared with $142.7 million, or $2.46 per diluted share. Adjusted EBITDA was $229.5 million versus $220.5 million, while adjusted EBITDA margin narrowed to 45.9% from 48.8%. Costs are still growing faster than sales.
Expenses tell that story. Cost of revenues rose 20.5% year over year, sales and marketing rose 11.5% and research and development rose 18.4%. Gross margin was 84.3%, down from 85.6%, and adjusted gross margin was 84.9% versus 86.1%. Research spending keeps climbing. The expensed portion rose to $50.5 million from $42.7 million, the capitalized portion rose to $29.8 million from $21.4 million, and total research and development costs rose to $80.4 million from $64.0 million.
Cash generation grew far more slowly than earnings. Operating cash flow was $148.6 million for the quarter, up 1.7% from $146.1 million, and capital expenditures rose 17.5% to $47.7 million from $40.6 million. Stock-based compensation turned negative at $93.8 million for the quarter because of the award forfeiture, which explains part of the divergence between net income and cash flow. Deferred revenue, a gauge of billings, rose 13.4% to $137.0 million from $120.8 million.
New guidance covers the quarter ending June 30, 2024 and the full year ending December 31, 2024. For the second quarter, management issued a revenue range and guided adjusted EBITDA to $151 million to $155 million. For the full year, it issued a full-year revenue range and guided adjusted EBITDA to $720 million to $730 million. The company did not reconcile the forward-looking adjusted EBITDA ranges to net income, citing uncertainty around depreciation and amortization, interest, taxes and stock-based compensation.
Two product dynamics constrained the top line. Beti, the self-service payroll tool, is built to eliminate payroll errors that create billable corrections and unscheduled payroll runs, and management said that effect, plus softer sales of additional applications to existing clients, reduced the size of the year-over-year revenue gain. Pre-employment services remain sensitive to hiring trends, and management expects that business to reflect the current slowdown in hiring among U.S. employers. A higher average funds held for clients balance, $2.6 billion versus $2.4 billion, and higher interest rates lifted recurring revenue.
Profitability also got a tax assist. The effective income tax rate was 14.8% for the quarter, down from 28.0%, mostly because of the tax benefit from the CEO award forfeiture. The 10-Q lists the usual risk set: cybersecurity breaches, data privacy compliance, intensifying competition in HCM software, reliance on key executives, the strain of rapid growth, and the cost of international expansion. Revenue stays seasonal, with the first and fourth quarters usually the strongest for recurring revenue. The board declared a quarterly cash dividend of $0.375 per share payable on June 10, 2024.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q1 FY2024 | Q4 FY2023 | QoQ | Q1 FY2023 | YoY |
|---|---|---|---|---|---|
| Revenue | $499.9M | $434.6M | +15.0% | $451.6M | +10.7% |
| Gross profit | $421.3M | $359.9M | +17.0% | $386.4M | +9.0% |
| Gross margin | 84.3% | 82.8% | +1.5 pp | 85.6% | -1.3 pp |
| Research & development | $50.5M | $55.3M | -8.7% | $42.7M | +18.4% |
| Sales & marketing | $135.4M | $253.2M | -46.5% | $226.0M | -40.1% |
| Total operating expenses | $214.1M | $327.9M | -34.7% | $291.2M | -26.5% |
| Operating income (loss) | $285.8M | $106.7M | +167.8% | $160.4M | +78.2% |
| Operating margin | 57.2% | 24.6% | +32.6 pp | 35.5% | +21.7 pp |
| Net income (loss) | $247.2M | $81.8M | +202.3% | $119.3M | +107.2% |
| Net margin | 49.5% | 18.8% | +30.6 pp | 26.4% | +23.0 pp |
| Diluted EPS | $4.37 | $1.41 | +$2.96 | $2.06 | +$2.31 |
Risks
MD&A states Beti is designed to eliminate payroll errors that lead to billable corrections and unscheduled payroll runs, and the company has experienced and expects to continue to experience a reduction in these activities that would otherwise generate additional revenue, adversely affecting the magnitude of the period-over-period revenue increase.
MD&A says the performance of pre-employment services offerings is sensitive to changes in hiring trends and will reflect the current slowdown in hiring among U.S. employers.
MD&A states the HCM software market is highly competitive, rapidly evolving and fragmented, and expects competition to intensify as new market entrants and disruptive technologies emerge and increasingly aggressive pricing and client retention strategies persist.
MD&A says revenue growth and geographic expansion drive increases in employee headcount, salaries and benefits, stock-based compensation expense and facility costs, and that execution of international expansion requires considerable investment; the company expects continued pressure on margins as it hires to support growth.
Summary, forecast, risks and KPIs are extracted from Paycom Software, Inc.'s SEC filings for Q1 FY2024 (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.