Summary
Paycom Software reported second-quarter revenue of $437.5 million, up 9.1% from the prior-year quarter. Year-to-date revenue was $937.4 million, up 9.9%. Gross profit for the quarter was $353.6 million, and the current-quarter gross margin was 80.8%. The year-to-date gross margin was 82.7%. The company attributed the revenue increase to new client additions, higher revenue per client, pricing strategies, and new product offerings. Management also said a decrease in the sale of additional applications to existing clients weighed on the magnitude of the period-over-period increase. Paycom serves a diverse client base, and no client accounted for more than one-half of one percent of revenues for the six months ended June 30, 2024.
Operating income was $95.1 million in the quarter, up 9.0%. Operating margin was 21.7%, flat versus the prior-year quarter. For the first six months, operating income was $381.0 million, up 53.8%, and operating margin was 40.6%, up 11.6 percentage points. The year-to-date rise includes a reversal of previously recognized stock-based compensation expense tied to the forfeiture of a restricted stock award after Chad Richison moved to Co-Chief Executive Officer. Net income was $68.0 million in the quarter, up 5.4%, and diluted EPS was $1.20, up 8.1%. Year-to-date net income was $315.2 million, up 71.5%, and diluted EPS was $5.57, up 75.7%.
Operating cash flow was $132.1 million in the quarter, up 24.8%. Year-to-date operating cash flow was $280.7 million, up 11.4%. Capital expenditures were $45.6 million in the quarter, up 6.5%. Year-to-date capital expenditures were $93.3 million, up 11.9%. Deferred revenue was $142.4 million at June 30, 2024, up 14.6% from the prior-year quarter. The company said it completed an expansion of its corporate headquarters that was placed into service in the second quarter, and it expects second-half 2024 capital expenditures to be generally consistent with the comparable prior-year period. Management also said the increase in implementation and other revenues was primarily due to higher non-refundable upfront conversion fees from new clients, which are deferred and recognized ratably over the 10-year estimated life of the client.
Non-GAAP results add context. Adjusted EBITDA was $159.7 million, or 36.5% of total revenue. Non-GAAP net income was $91.8 million, or $1.62 per diluted share. The company said its outside sales team delivered solid performance with robust new logo adds, and it continues to push automation, including Beti. That automation creates a headwind: Beti is designed to eliminate payroll errors that lead to billable corrections and unscheduled payroll runs, so the company has seen a reduction in those activities that would otherwise generate additional revenue. Management also noted that revenues are seasonal, with first and fourth quarter recurring revenues generally higher than other quarters because payroll tax filing forms, Affordable Care Act forms, and unscheduled payroll runs are concentrated in those periods.
Guidance points to continued growth with lower adjusted profitability in the next quarter. For the quarter ending September 30, 2024, Paycom expects adjusted EBITDA of $155 million to $159 million. For the full fiscal year ending December 31, 2024, adjusted EBITDA is expected to range from $727 million to $737 million. The company also issued revenue guidance for both periods. It did not reconcile the forward-looking adjusted EBITDA ranges or margins to comparable GAAP measures, because the applicable information for future periods is not readily available or is subject to variability in items such as depreciation, amortization, interest, taxes, and stock-based compensation.
Risks remain familiar for a high-growth HCM software company. The market is highly competitive, rapidly evolving, and fragmented, with new entrants and disruptive technologies. Paycom faces security and privacy risks, potential regulatory changes, reliance on key executives, and the challenge of attracting and retaining personnel. Macroeconomic pressures, including inflation and interest rates, can affect client hiring practices and, in turn, revenue per employee. The company also expects continued pressure on margins as it invests in sales, research and development, international expansion, and facilities. Those investments support growth, but they also make margin expansion less certain. The company also flagged the possibility that the Affordable Care Act may be modified, repealed, or declared unconstitutional.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q2 FY2024 | Q1 FY2024 | QoQ | Q2 FY2023 | YoY |
|---|---|---|---|---|---|
| Revenue | $437.5M | $499.9M | -12.5% | $401.1M | +9.1% |
| Gross profit | $353.6M | $421.3M | -16.1% | $333.7M | +6.0% |
| Gross margin | 80.8% | 84.3% | -3.4 pp | 83.2% | -2.4 pp |
| Research & development | $62.4M | $50.5M | +23.5% | $49.1M | +27.0% |
| Sales & marketing | $258.5M | $135.4M | +90.9% | $246.4M | +4.9% |
| Total operating expenses | $342.4M | $214.1M | +59.9% | $313.9M | +9.1% |
| Operating income (loss) | $95.1M | $285.8M | -66.7% | $87.3M | +9.0% |
| Operating margin | 21.8% | 57.2% | -35.4 pp | 21.8% | ±0.0 pp |
| Net income (loss) | $68.0M | $247.2M | -72.5% | $64.5M | +5.4% |
| Net margin | 15.5% | 49.5% | -33.9 pp | 16.1% | -0.5 pp |
| Diluted EPS | $1.20 | $4.37 | -$3.17 | $1.11 | +$0.09 |
Risks
The HCM software market is highly competitive, rapidly evolving and fragmented. Paycom expects competition to intensify as new market entrants and disruptive technologies emerge and aggressive pricing and client retention strategies persist.
Beti is designed to eliminate payroll errors that lead to billable corrections and unscheduled payroll runs. Paycom has experienced a reduction in these activities that would otherwise generate additional revenue.
MD&A states that a decrease in the sale of additional applications to existing clients adversely affected the magnitude of the period-over-period revenue increase. This may limit growth from cross-selling into the existing client base.
Inflation, rising interest rates and other macroeconomic pressures affect clients' hiring practices. Because certain services are charged per employee and pre-employment services depend on hiring trends, a slowdown in U.S. hiring could reduce revenues.
Growing the business requires substantial investments in sales professionals, operating expenses, system development and general and administrative costs. Paycom has experienced and expects continued margin pressure as it hires to support growth and invests in international expansion.
Revenues are seasonal, with first and fourth quarter recurring revenues generally higher due to payroll tax and ACA form processing and unscheduled payroll runs. These fluctuations impact operating income.
Paycom states that it must effectively hire, train, motivate and retain qualified personnel to execute its strategy. Growth and geographic expansion drive increases in headcount and related compensation and facility costs.
SaaS KPIs
All quarters →Adjusted EBITDA margin
Adjusted EBITDA
Adjusted gross margin
Non-GAAP Net Income
Non-GAAP Net Income per Diluted Share
Summary, forecast, risks and KPIs are extracted from Paycom Software, Inc.'s SEC filings for Q2 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.