Summary
Paycom Software reported results for the quarter ended June 30, 2023. Total revenues were $401.1 million, up 26.6% from the prior-year quarter. GAAP net income was $64.5 million, up 12.5%, and diluted EPS was $1.11, up 12.1%. Operating income rose 20.7% to $87.3 million. Operating margin was 21.8%, down 1.1 percentage points from the prior-year quarter. Non-GAAP net income was $94.3 million, or $1.62 per diluted share, and adjusted EBITDA was $156.6 million. The company expanded its target client size range to include enterprise organizations with more than 10,000 employees.
Cash generation was a bright spot. Operating cash flow for the quarter was $105.9 million, up 104.7% from the prior-year quarter, and capital expenditures were $42.8 million, up 28.7%. Deferred revenue at quarter-end was $124.23 million, up 14.1% from the prior-year quarter. The company paid a quarterly cash dividend of $0.375 per share in June 2023 and declared another $0.375 per share dividend in July 2023. As of June 30, 2023, $1.1 billion remained available under the stock repurchase plan. For the six months ended June 30, 2023, operating cash flow was $251.99 million, up 49.1%, while capital expenditures were $83.42 million, up 23.2%.
Year-to-date results also showed growth. Revenue for the six months ended June 30, 2023, was $852.78 million, up 27.2%. Operating income was $247.7 million, up 24.7%, and net income was $183.8 million, up 23.1%. Diluted EPS was $3.17, up 23.3%. Operating margin for the year-to-date period was 29.0%, down 0.6 percentage points from the prior-year period.
Guidance points to continued expansion. For the quarter ending September 30, 2023, Paycom expects adjusted EBITDA of $156 million to $158 million. For the full year ending December 31, 2023, the company guided adjusted EBITDA of $722 million to $724 million. Revenue guidance was also issued for both the September quarter and the full year, presented as ranges. On the conference call, management referred to a forward-looking estimate of its implied revenue growth rate plus adjusted EBITDA margin, or the Rule of 67. The forward-looking adjusted EBITDA figures are not reconciled to net income because certain items are not readily available.
Operational momentum comes from new clients, productivity in mature sales offices, and additional applications sold to existing clients. The company noted that its tax forms filing business in the first quarter contributed to year-to-date revenue growth. Rising interest rates and a higher average funds held for clients balance increased interest earned on client funds. Paycom also completed an amendment to its credit agreement on July 28, 2023, increasing aggregate revolving commitments from $650.0 million to $1.0 billion and terminating the term loan facility. The company is forming Paycom Client Trust and Paycom National Trust Bank, NA to hold client payroll and related funds.
Risks remain. The company faces possible security vulnerabilities, cyberattacks, and data privacy issues. It must comply with changing laws and regulations, develop new applications, compete effectively, and manage rapid growth. Paycom depends on key executives and on attracting and retaining software developers and skilled personnel. Economic and market conditions, seasonality of certain results, international operations, and reliance on third parties are additional concerns. The headquarters expansion is expected to cost between $70 million and $75 million, with construction completed in the first quarter of 2024. The naming rights agreement requires payments escalating from $4.0 million in 2021 to $6.1 million in 2035. These commitments, along with the quarterly dividend and stock repurchase plan, will shape capital allocation in coming periods.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q2 FY2023 | Q1 FY2023 | QoQ | Q2 FY2022 | YoY |
|---|---|---|---|---|---|
| Revenue | $401.1M | $451.6M | -11.2% | $316.9M | +26.6% |
| Gross profit | $333.7M | $386.4M | -13.6% | $266.8M | +25.1% |
| Gross margin | 83.2% | 85.6% | -2.4 pp | 84.2% | -1.0 pp |
| Research & development | $49.1M | $42.7M | +15.1% | $36.8M | +33.5% |
| Sales & marketing | $246.4M | $226.0M | +9.1% | $194.5M | +26.7% |
| General & administrative | $76.0M | $65.6M | +15.8% | $57.9M | +31.2% |
| Total operating expenses | $313.9M | $291.2M | +7.8% | $244.6M | +28.3% |
| Operating income (loss) | $87.3M | $160.4M | -45.6% | $72.3M | +20.7% |
| Operating margin | 21.8% | 35.5% | -13.8 pp | 22.8% | -1.1 pp |
| Net income (loss) | $64.5M | $119.3M | -45.9% | $57.4M | +12.5% |
| Net margin | 16.1% | 26.4% | -10.3 pp | 18.1% | -2.0 pp |
| Diluted EPS | $1.11 | $2.06 | -$0.95 | $0.99 | +$0.12 |
Risks
The filing re-emphasizes that certain third parties have been subject to cyber attacks, one of which resulted in unauthorized access to data of certain Company clients and their employees as well as Company data and employee records. It notes HCM software is often targeted and that cyber liability insurance may be inadequate or unavailable.
Paycom has recently begun expanding operations outside the United States, subjecting it to multiple conflicting laws and regulations, including privacy, tax, export/import, employment and FCPA compliance, and difficulties staffing and managing foreign operations. The risk factor states expansion requires significant resources and may not be successful.
Operating margin decreased to 21.8% in FY2023 Q2 from 22.8% in FY2022 Q2, down 1.1 pp. MD&A says growing the business has resulted in and will continue to result in substantial investments in sales, operating expenses, system development and G&A that have increased and will continue to increase expenses.
In May 2023 the Board adopted a dividend policy and declared a quarterly dividend of $0.375 per share, but the filing warns dividends are at the Board's discretion, subject to financial results and statutory surplus, and may not continue or may change. The policy could be modified, suspended or canceled.
SaaS KPIs
All quarters →Adjusted EBITDA margin
Adjusted EBITDA
Summary, forecast, risks and KPIs are extracted from Paycom Software, Inc.'s SEC filings for Q2 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.