Summary
Paycom closed the third quarter of fiscal 2022 with revenue of $334.2 million, up 30.4% from the prior-year quarter. Operating income was $74.3 million, up 71.5%, and operating margin was 22.2%, up 5.3 percentage points from the prior-year quarter. Net income was $52.2 million, up 71.7%, and diluted EPS was $0.90, up 73.1%. Year to date, revenue was $1.00 billion, up 30.4%. Year-to-date operating income was $272.8 million, up 47.5%, with an operating margin of 27.2%, up 3.2 percentage points. Year-to-date net income was $201.4 million, up 36.8%, and year-to-date diluted EPS was $3.46, up 36.8%. The quarter paired fast top-line growth with real operating leverage.
Cash generation was mixed. Operating cash flow was $67.7 million for the quarter, down 18.6% from the prior-year quarter, while year-to-date operating cash flow was $236.6 million, up 3.1%. Capital expenditures were $24.3 million in the quarter, up 1.4%, and $92.0 million year to date, up 6.1%. Deferred revenue finished the quarter at $114.0 million, up 16.5% from the prior-year quarter. On a non-GAAP basis, adjusted EBITDA was $126.0 million, or 37.7% of total revenues, and non-GAAP net income was $73.4 million, or $1.27 per diluted share. Those non-GAAP measures strip out non-cash stock-based compensation and other items, so they sit well above GAAP net income and GAAP diluted EPS.
Guidance points to continued expansion. For the quarter ending December 31, 2022, Paycom issued ranges for total revenues and adjusted EBITDA. For the full year ending December 31, 2022, the company gave ranges for total revenues and adjusted EBITDA as well. Paycom has not reconciled forward-looking adjusted EBITDA to net income, or forward-looking adjusted EBITDA margin to net income margin, because some of the underlying items are not readily available. Management also points to a forward-looking Rule of 70, which combines the revenue growth rate with the adjusted EBITDA margin.
Operational investments remain the core of the story. In January 2022, Paycom added sales teams in Las Vegas, Jacksonville, New England and South Jersey, lifting its total to 55 sales teams in 28 states. Its target client size is 50 to 10,000 employees. The company keeps pushing products such as Beti, its payroll automation tool launched in 2021. Payroll remains the foundation of the suite, and every client must use it to reach other applications. Management ties retention and revenue growth to client adoption of new applications and to employee usage of the platform.
Risks are familiar but real. The 10-Q flags security vulnerabilities, cyberattacks, data privacy compliance, competition, the difficulty of managing rapid growth, reliance on key executives, and the challenge of hiring software developers and sales staff. COVID-19 still clouds the outlook, and client headcount swings feed straight into per-employee revenue. Seasonality matters, since first and fourth quarter recurring revenues are typically the strongest. Rising interest rates and a higher average funds held for clients balance lifted interest income this quarter, but that tailwind can fade. The balance sheet carries a $650.0 million revolving credit facility and a $750.0 million delayed draw term loan facility, and in August 2022 the board authorized up to $1.1 billion of stock repurchases through August 15, 2024.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q3 FY2022 | Q2 FY2022 | QoQ | Q3 FY2021 | YoY |
|---|---|---|---|---|---|
| Revenue | $334.2M | $316.9M | +5.4% | $256.2M | +30.4% |
| Gross profit | $279.1M | $266.8M | +4.6% | $213.5M | +30.7% |
| Gross margin | 83.5% | 84.2% | -0.7 pp | 83.3% | +0.2 pp |
| Research & development | $40.4M | $36.8M | +9.7% | $31.1M | +29.9% |
| Sales & marketing | $204.8M | $194.5M | +5.3% | $170.2M | +20.3% |
| General & administrative | $60.7M | $57.9M | +4.8% | $60.0M | +1.2% |
| Total operating expenses | $259.9M | $244.6M | +6.3% | $212.9M | +22.1% |
| Operating income (loss) | $74.3M | $72.3M | +2.7% | $43.3M | +71.5% |
| Operating margin | 22.2% | 22.8% | -0.6 pp | 16.9% | +5.3 pp |
| Net income (loss) | $52.2M | $57.4M | -9.1% | $30.4M | +71.7% |
| Net margin | 15.6% | 18.1% | -2.5 pp | 11.9% | +3.8 pp |
| Diluted EPS | $0.90 | $0.99 | -$0.09 | $0.52 | +$0.38 |
Risks
Forward-looking factors include the possibility of security vulnerabilities, cyberattacks and network disruptions, including breaches of data security and privacy leaks, data loss, and business interruptions, together with compliance with data privacy laws and regulations. The company holds significant client funds and employee data, raising the consequence of any breach.
MD&A states that because the company charges clients on a per-employee basis, any increase or decrease in client headcount directly affects results, and notes that the COVID-19 pandemic has resulted in and may continue to result in headcount fluctuations across the client base. Severity and duration of the pandemic and its effect on client headcount remain uncertain.
MD&A attributes part of the increase in recurring revenue for the three and nine months ended September 30, 2022 to rising interest rates and a higher average funds held for clients balance. A reversal in interest rates would reduce interest earned on client funds that currently benefits recurring revenue.
MD&A lists dependence on key executives and the ability to attract and retain qualified personnel, including software developers and skilled IT, sales, marketing and operational personnel, among the factors that could cause actual results to differ. Headcount growth drove increases in salaries, benefits, stock-based compensation and facility costs across all expense lines.
MD&A notes the HCM industry is driven in part by legislation and regulatory action such as COBRA, changes to minimum wage laws or overtime rules, and federal, state or municipal tax legislation, and its forward-looking factors include the possibility that the Affordable Care Act may be modified, repealed or declared unconstitutional.
MD&A states that growing the business has resulted in and will continue to result in substantial investments in sales professionals, operating expenses, system development and programming costs, and general and administrative expenses, with sales and marketing expense up 30.6% and 26.6% for the three and nine months ended September 30, 2022. Managing rapid growth and organizational change is flagged as a risk.
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 Q3 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.