Summary
Paycom closed the quarter ended September 30, 2021 with total revenues of $256.19 million, up 30.4% from $196.53 million in the comparable prior-year quarter. New clients, productivity gains in mature sales offices and additional applications sold to the existing base drove the increase. Recurring revenues accounted for 98.1% of the total. For the nine months ended September 30, 2021, total revenues reached $770.54 million, up 24.2% from $620.49 million a year earlier. On a non-GAAP basis, net income was $53.6 million, or $0.92 per diluted share, and adjusted EBITDA was $89.7 million, equal to 35.0% of total revenues. Management described the quarter as very strong and said it would keep reinvesting in product innovation, sales and marketing, and service.
GAAP profitability grew more slowly than the top line. Net income for the quarter was $30.38 million, up 10.5% from $27.48 million a year earlier, and diluted earnings per share were $0.52, up from $0.47. Operating income rose 27.2% to $43.30 million, but the operating margin slipped to 16.9% from 17.3%, a decline of 0.4 percentage points. Cost of revenues, sales and marketing, research and development and general and administrative expenses all moved higher, and general and administrative expense absorbed a large increase in non-cash stock-based compensation tied to more awards and higher grant-date fair values. The nine-month numbers look steadier. Net income was $147.27 million, up 23.7% from $119.09 million. Diluted earnings per share were $2.53 against $2.04. Operating income was $184.94 million, up 23.4%, and the operating margin was 24.0%, down 0.2 percentage points from 24.2%.
Cash generation held up well. Operating cash flow was $83.19 million for the quarter, up 24.5% from $66.82 million a year earlier, and $229.64 million for the nine months, up 31.7% from $174.33 million. Capital expenditures, which are a cash outflow, were $23.99 million in the quarter and $86.72 million for the nine months, up 14.0% and 18.0%. Deferred revenue, a rough proxy for work already billed, stood at $97.88 million at September 30, 2021, up 14.6% from $85.39 million a year earlier. Spending on facilities continues. The company is building an expanded operations facility in Grapevine, Texas, and on November 3, 2021 it signed a construction contract for a fifth building at its Oklahoma City headquarters, a project it estimates will cost $60 million to $70 million and take about two years. Naming rights payments escalate from $4.0 million in 2021 to $6.1 million in 2035. As of September 30, 2021, $270.7 million remained available under the stock repurchase plan.
Guidance covers both the next quarter and the full fiscal year. For the fourth quarter of 2021, adjusted EBITDA is targeted at $103 million to $105 million. For the full fiscal year 2021, adjusted EBITDA is targeted at $413 million to $415 million. Management also gave revenue ranges for both periods. It repeated that adjusted EBITDA is a non-GAAP measure, and the company has not reconciled the forward-looking adjusted EBITDA ranges to net income, so the GAAP counterparts are not available at this time. That leaves a gap for investors who want an earnings-based view of the outlook.
The risk list is short but real. Paycom charges clients on a per-employee basis for some services, so headcount swings at clients move recurring revenue. Layoffs during the pandemic hurt client revenue, though additions from new clients and modestly better headcount among the pre-pandemic base more than offset that drag during the third quarter. Significantly lower average interest rates cut into interest earned on funds held for clients and held back recurring revenue growth. Most employees returned to offices in the third quarter, with a large group on alternating schedules, and the company is still evaluating a Department of Labor emergency temporary standard issued November 4, 2021 that requires vaccination or weekly testing and masking at employers with 100 or more employees. Other disclosed risks include competition, cybersecurity and data privacy exposure, reliance on key executives, and seasonality, since first-quarter revenue and margins are generally higher than in later quarters.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q3 FY2021 | Q2 FY2021 | QoQ | Q3 FY2020 | YoY |
|---|---|---|---|---|---|
| Revenue | $256.2M | $242.1M | +5.8% | $196.5M | +30.4% |
| Gross profit | $213.5M | $205.7M | +3.8% | $165.6M | +28.9% |
| Gross margin | 83.3% | 85.0% | -1.6 pp | 84.3% | -0.9 pp |
| Research & development | $31.1M | $28.2M | +10.1% | $21.8M | +42.7% |
| Sales & marketing | $170.2M | $158.6M | +7.3% | $131.6M | +29.4% |
| General & administrative | $60.0M | $54.1M | +10.9% | $40.5M | +48.0% |
| Total operating expenses | $212.9M | $195.1M | +9.1% | $162.5M | +31.0% |
| Operating income (loss) | $43.3M | $47.1M | -8.0% | $34.0M | +27.2% |
| Operating margin | 16.9% | 19.4% | -2.6 pp | 17.3% | -0.4 pp |
| Net income (loss) | $30.4M | $52.3M | -41.9% | $27.5M | +10.5% |
| Net margin | 11.9% | 21.6% | -9.7 pp | 14.0% | -2.1 pp |
| Diluted EPS | $0.52 | $0.90 | -$0.38 | $0.47 | +$0.05 |
Risks
The ongoing COVID-19 pandemic continues to disrupt client operations, and because Paycom charges clients on a per-employee basis for certain services, headcount reductions across the client base negatively impacted recurring revenue beginning in Q2 2020, and management expects recurring revenue to remain negatively affected until employment levels return to pre-pandemic levels.
Significantly lower average interest rates during the nine months ended September 30, 2021 versus the comparable 2020 period reduced interest earned on funds held for clients, which had a negative effect on recurring revenue growth for the three and nine months ended September 30, 2021, with further adverse effects expected while such conditions persist.
Building and investment activity is expanding the cost base: Paycom is completing a Texas operations facility, signed a construction contract on November 3, 2021 for a fifth Oklahoma City building estimated at $60 million to $70 million, and committed to arena naming rights payments escalating from $4.0 million in 2021 to $6.1 million in 2035. Capital expenditures rose in the current year to date.
Non-cash stock-based compensation expense has grown sharply, up 49% in the quarter and 35% year to date versus prior periods, driven by more award recipients, higher grant date fair values and accelerated vesting of market-based restricted stock. General and administrative stock-based compensation alone increased 82% in the quarter.
The Department of Labor's OSHA emergency temporary standard released November 4, 2021 requires private employers with 100 or more employees to mandate vaccination or weekly testing and masking for unvaccinated employees. Paycom stated it is evaluating the impact on its business, employees and those of its clients.
Paycom's sales force has sold virtually since March 2020, and as prospective clients begin taking in-person meetings management expects the sales process to transition to a combination of virtual and in-person meetings, a shift that could affect selling efficiency.
SaaS KPIs
All quarters →Adjusted EBITDA margin
Adjusted gross margin
Summary, forecast, risks and KPIs are extracted from Paycom Software, Inc.'s SEC filings for Q3 FY2021 (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.