Summary
Paycom's second quarter revenue climbed 30.9% to $316.9 million from $242.1 million in the comparable prior year period. Recurring revenue carried the quarter at $311.5 million, up 31.1%, and represented 98.3% of the total. Management credits new client additions, productivity gains in mature sales offices that have been open at least 24 months, additional applications sold to existing clients, and higher interest earned on funds held for clients as rates rose. Paycom finished the period with 55 sales teams in 28 states after adding teams in Las Vegas, Jacksonville, New England and South Jersey in January 2022.
Profitability improved on the operating line. Operating income rose 53.6% to $72.3 million from $47.1 million, and operating margin was 22.8%, up from 19.4%. Net income rose 9.7% to $57.4 million from $52.3 million, and diluted earnings per share were $0.99 against $0.90. Taxes weighed on the bottom line. Paycom booked a provision for income taxes of $15.5 million in the quarter, compared with a benefit a year earlier, and its effective income tax rate was 25.5% for the six months ended June 30, 2022 versus 17.9% in the same period of 2021. The company ties that increase to a decrease in excess tax benefits from stock-based compensation.
Non-GAAP results looked stronger. Non-GAAP net income was $73.0 million, or $1.26 per diluted share, compared with $56.5 million, or $0.97, a year earlier. Adjusted EBITDA reached $119.6 million against $87.0 million, and adjusted EBITDA margin was 37.7% versus 35.9%. Founder and CEO Chad Richison tied the quarter to demand for self-service payroll and pointed to Beti, the tool that lets employees run their own payroll.
For the six months ended June 30, 2022, revenue rose 30.3% to $670.4 million, operating income rose 40.2% to $198.6 million, and net income rose 27.7% to $149.3 million. Diluted earnings per share for the year to date were $2.57 against $2.01.
Cash generation was uneven. Operating cash flow for the quarter fell 9.2% to $51.7 million from $57.0 million, while the six-month figure rose 15.4% to $169.0 million. Capital expenditures were $33.2 million in the quarter, down 11.1%, and $67.7 million for the six months, up 8.0%. Deferred revenue ended the quarter at $108.9 million, up 17.8% from $92.5 million.
Guidance points to more of the same. Paycom issued revenue ranges for the quarter ending September 30, 2022 and for the full year ending December 31, 2022, alongside adjusted EBITDA of $117 million to $119 million for the next quarter and $546 million to $548 million for the full fiscal year. The company does not reconcile those forward-looking adjusted EBITDA figures to net income, citing uncertainty around depreciation and amortization, interest expense, taxes, non-cash stock-based compensation, the change in fair value of the interest rate swap and other items.
Capital commitments are rising. The Oklahoma City headquarters expansion is expected to cost $60 million to $70 million over roughly two years, and naming rights payments escalate from $4.0 million in 2021 to $6.1 million in 2035. In June 2022 the board authorized up to $550.0 million of share repurchases, all of which remained available as of June 30, 2022, with the plan running through June 7, 2024. Paycom repurchased 363,569 shares at an average cost of $273.52 in the first six months. The 10-Q lists the risks worth watching: cybersecurity and data breaches, compliance with data privacy laws, competition, reliance on key executives, difficulty hiring developers and sales staff, and seasonality that lifts first and fourth quarter recurring revenue above the rest of the year. A $650.0 million revolving credit facility and a $750.0 million delayed draw term loan facility were in place as of July 2022.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q2 FY2022 | Q1 FY2022 | QoQ | Q2 FY2021 | YoY |
|---|---|---|---|---|---|
| Revenue | $316.9M | $353.5M | -10.4% | $242.1M | +30.9% |
| Gross profit | $266.8M | $305.0M | -12.5% | $205.7M | +29.7% |
| Gross margin | 84.2% | 86.3% | -2.1 pp | 85.0% | -0.8 pp |
| Research & development | $36.8M | $31.6M | +16.4% | $28.2M | +30.4% |
| Sales & marketing | $194.5M | $178.8M | +8.8% | $158.6M | +22.6% |
| General & administrative | $57.9M | $60.5M | -4.3% | $54.1M | +7.1% |
| Total operating expenses | $244.6M | $227.3M | +7.6% | $195.1M | +25.4% |
| Operating income (loss) | $72.3M | $126.3M | -42.7% | $47.1M | +53.6% |
| Operating margin | 22.8% | 35.7% | -12.9 pp | 19.4% | +3.4 pp |
| Net income (loss) | $57.4M | $91.9M | -37.6% | $52.3M | +9.7% |
| Net margin | 18.1% | 26.0% | -7.9 pp | 21.6% | -3.5 pp |
| Diluted EPS | $0.99 | $1.58 | -$0.59 | $0.90 | +$0.09 |
Risks
The July 2022 Credit Agreement, entered into on July 29, 2022, provides a $650.0 million revolving facility and a $750.0 million delayed draw term loan facility that bear interest at floating SOFR-based rates, so rising interest rates would increase borrowing costs; this followed the May 2022 facility under which $29.0 million was outstanding as of June 30, 2022.
COVID-19 has caused and may continue to cause headcount fluctuations across the client base, and because Paycom charges on a per-employee basis, lower client headcount negatively affects revenue. The MD&A notes the negative effects of pandemic-driven headcount reductions were only more than offset by new client additions and modestly improved pre-pandemic client headcount beginning in Q2 2021.
Operating expenses rose on sizable employee-related increases: sales and marketing employee costs increased $15.2 million for the quarter and $24.6 million for the six months ended June 30, 2022, and R&D employee costs rose $8.6 million and $15.5 million, respectively, reflecting the company's dependence on hiring and retaining personnel to support growth.
The effective income tax rate rose to 25.5% for the six months ended June 30, 2022 from 17.9% in the prior-year period, primarily due to a decrease in excess tax benefits from stock-based compensation, which could pressure net income and EPS if stock-based comp benefits continue to decline.
First and fourth quarter recurring revenues are typically higher due to annual payroll tax form filing (Form W-2, 1099, 1095) and unscheduled year-end payroll runs, and MD&A warns that revenue gains from the first-quarter tax filing business contributed to the six-month increase, meaning quarter-to-quarter results may not be reliable indicators of future performance.
The HCM industry is subject to changing federal, state and municipal employment, payroll tax and benefit regulations, including COBRA, minimum wage and overtime rules, and MD&A flags changes in laws, regulations and interpretations as a factor that could cause actual results to differ materially.
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 Q2 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.