Summary
Paycom Software reported third quarter fiscal 2023 revenue of $406.3 million, up 21.6% from the prior year quarter. Year-to-date revenue reached $1.26 billion, up 25.3%. Operating income for the quarter was $96.9 million, up 30.5%. Year-to-date operating income was $344.6 million, up 26.3%. Operating margin expanded to 23.8% in the quarter, up 1.6 percentage points, and year-to-date operating margin was 27.4%, up 0.2 percentage points. Net income rose 44.2% to $75.2 million, or $1.30 per diluted share. Year-to-date net income was $259.0 million, up 28.6%, with diluted EPS of $4.46, up 28.9%.
Non-GAAP net income was $102.4 million, or $1.77 per diluted share, compared with $73.4 million, or $1.27, in the prior year quarter. Adjusted EBITDA was $165.6 million, representing 40.8% of total revenues, compared with $126.0 million in the same period last year. Recurring revenues made up 98.1% of total revenues. Operating cash flow for the quarter was $98.6 million, up 45.6%, and year-to-date operating cash flow was $350.6 million, up 48.1%. Capital expenditures jumped to $52.3 million in the quarter, up 115.0%. Year-to-date capital expenditures were $135.7 million, up 47.4%. Deferred revenue at quarter-end was $128.3 million, up 12.5%.
For the quarter ending December 31, 2023, Paycom guided adjusted EBITDA of $169 million to $174 million. For the full fiscal year 2023, the company guided adjusted EBITDA of $712 million to $717 million. Paycom also gave total revenue guidance for both the fourth quarter and the full year, but it did not reconcile forward-looking adjusted EBITDA to net income because items such as depreciation and amortization, interest expense, taxes and stock-based compensation are not readily available. Management noted that the fourth quarter benefits from seasonal unscheduled payroll runs, while the first quarter benefits from tax form processing.
The MD&A highlights that Beti, the company's self-service payroll technology, eliminates payroll errors that lead to billable corrections and unscheduled payroll runs. This dynamic has reduced and will continue to reduce revenue that Paycom would otherwise earn. Paycom has expanded its target client range to organizations with more than 10,000 employees, and it is expanding payroll services into Canada and Mexico. The market remains highly competitive, with new entrants and aggressive pricing. The company lists risks including security vulnerabilities, cyberattacks, data privacy compliance, regulatory changes, the ability to develop new applications, managing rapid growth, retaining key personnel, and macroeconomic pressures such as inflation and rising interest rates. Interest rate sensitivity is material: a 100 basis point change in rates would move interest earned on funds held for clients by about $22.0 million over the next 12 months, while a 100 basis point change would affect the market value of fixed rate securities by about $2.0 million. Paycom also faces seasonality, with first and fourth quarter recurring revenues typically higher than other quarters.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q3 FY2023 | Q2 FY2023 | QoQ | Q3 FY2022 | YoY |
|---|---|---|---|---|---|
| Revenue | $406.3M | $401.1M | +1.3% | $334.2M | +21.6% |
| Gross profit | $337.4M | $333.7M | +1.1% | $279.1M | +20.9% |
| Gross margin | 83.0% | 83.2% | -0.2 pp | 83.5% | -0.5 pp |
| Research & development | $51.9M | $49.1M | +5.6% | $40.4M | +28.5% |
| Sales & marketing | $240.5M | $246.4M | -2.4% | $204.8M | +17.4% |
| General & administrative | $71.8M | $76.0M | -5.4% | $60.7M | +18.3% |
| Total operating expenses | $309.4M | $313.9M | -1.4% | $259.9M | +19.0% |
| Operating income (loss) | $96.9M | $87.3M | +11.0% | $74.3M | +30.5% |
| Operating margin | 23.9% | 21.8% | +2.1 pp | 22.2% | +1.6 pp |
| Net income (loss) | $75.2M | $64.5M | +16.6% | $52.2M | +44.2% |
| Net margin | 18.5% | 16.1% | +2.4 pp | 15.6% | +2.9 pp |
| Diluted EPS | $1.30 | $1.11 | +$0.19 | $0.90 | +$0.40 |
Risks
The risk factor on security breaches was expanded to disclose that a third-party cyber attack resulted in unauthorized access to data of certain Company clients and their employees as well as Company data and employee records. Paycom notes HCM software is often targeted, and a breach could harm reputation, cause client loss, and lead to lawsuits or regulatory fines.
The Enhanced Background Checks business is subject to extensive and evolving regulation, including the FCRA, state consumer reporting agency laws, and ban the box and fair chance hiring laws. New restrictions or court decisions limiting access to criminal records could reduce demand for the background screening application and materially adversely affect revenue or profitability.
Paycom has recently begun expanding operations outside the United States, including Global HCM payroll services into Canada and Mexico. The filing cites multiple conflicting laws, regulatory approvals, foreign staffing difficulties, and inexperience with international operations as risks that could adversely affect results.
Paycom faces potential liability from claims based on the nature, content, or accuracy of background check services, including FCRA non-compliance, defamation, invasion of privacy, negligence, and other claims, sometimes under strict liability. Insurance may not be adequate or available to cover these claims.
MD&A states that Beti is designed to eliminate payroll errors that lead to billable corrections and unscheduled payroll runs, and Paycom has experienced and expects to continue to experience a reduction in these activities that would otherwise generate additional revenue.
MD&A states that macroeconomic pressures such as inflation and rising interest rates impact clients' hiring practices, and because Paycom charges on a per-employee basis for certain services, any decrease in client employee headcount negatively affects revenues.
MD&A and Item 3 disclose that a hypothetical 100 basis point decrease in interest rates would result in an approximately $22.0 million decrease in interest earned on funds held for clients over the ensuing 12-month period. Interest earned on funds held for clients is included in recurring revenues.
The May 2023 dividend policy may not continue or may change. Dividend payments are at the Board of Directors' discretion, subject to financial results and the availability of statutory surplus, and the Board may modify, suspend, or cancel the policy at any time.
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 Q3 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.