PAYC Paycom Software Inc

Record Second Quarter Revenue of $98.2 million, up 33% from comparable prior year period

Record Second Quarter GAAP Net Income of $14.2 million, up 36% from comparable prior year period, or $0.24 per diluted share

Record Second Quarter Adjusted EBITDA of $27.8 million, up 23% from comparable prior year period

Record Second Quarter non-GAAP Net Income of $15.2 million, or $0.26 per diluted share

Paycom Software, Inc. (“Paycom”) (NYSE: PAYC), a leading provider of comprehensive, cloud-based human capital management software, today announced its financial results for the quarter ended June 30, 2017.

“Our second-quarter results reflect the strength of our position as more companies look to technology to help attract, retain and manage their talent,” said Paycom’s founder and CEO, Chad Richison. “Our software solution is well-positioned to help our clients achieve these goals and to drive growth for Paycom throughout the year.”

Financial Highlights for the Second Quarter of 2017

Total Revenue of $98.2 million represented a 33% increase compared to total revenue of $73.9 million in the same period last year. Recurring revenues of $96.4 million also increased 33% from the comparable prior year period, and constituted 98% of total revenues.

GAAP Net Income was $14.2 million, or $0.24 per diluted share, compared to GAAP net income of $10.4 million, or $0.18 per diluted share, in the same period last year.

Adjusted EBITDA1 was $27.8 million, compared to $22.6 million in the same period last year.

Non-GAAP Net Income1 was $15.2 million, or $0.26 per diluted share, compared to $12.4 million, or $0.21 per diluted share, in the same period last year.

Cash and Cash Equivalents were $68.1 million as of June 30, 2017.

Total Debt was $34.6 million as of June 30, 2017. This debt consisted solely of debt on our corporate headquarters.

1 Adjusted EBITDA and non-GAAP net income are non-GAAP financial measures. Please see the discussion below under the heading "Use of Non-GAAP Financial Information" and the reconciliations at the end of this release for additional information concerning these non-GAAP financial measures.

Financial Outlook

Paycom provides the following expected financial guidance for the quarter ending September 30, 2017 and year ending December 31, 2017:

Quarter Ending September 30, 2017

Total Revenues in the range of $99 million to $101 million.

Adjusted EBITDA in the range of $21 million to $23 million.

Year Ending December 31, 2017

Total Revenues in the range of $429.5 million to $431.5 million.

Adjusted EBITDA in the range of $122.5 million to $124.5 million.

We have not reconciled the Adjusted EBITDA ranges for the quarter ending September 30, 2017 or the year ending December 31, 2017 to net income because applicable information for future periods, on which this reconciliation would be based, is not readily available due to uncertainty regarding, and the potential variability of, depreciation and amortization, interest expense, taxes, non-cash stock-based compensation expense and other items. Accordingly, a reconciliation of these Adjusted EBITDA ranges to net income is not available at this time without unreasonable effort.

Use of Non-GAAP Financial Information

To supplement our financial information presented in accordance with generally accepted accounting principles in the United States (“GAAP”), we consider and have included certain non-GAAP financial measures in this press release, including Adjusted EBITDA and non-GAAP net income. Management uses Adjusted EBITDA and non-GAAP net income as supplemental measures to review and assess the performance of our core business operations and for planning purposes. We define: (i) Adjusted EBITDA as net income plus interest expense, taxes, depreciation and amortization, and non-cash stock-based compensation expense; and (ii) non-GAAP net income as net income plus non-cash stock-based compensation expense, which is adjusted for the effect of income taxes. Adjusted EBITDA and non-GAAP net income are metrics that provide investors with greater transparency to the information used by management in its financial and operational decision-making. We believe these metrics are useful to investors because they facilitate comparisons of our core business operations across periods on a consistent basis, as well as comparisons with the results of peer companies, many of which use similar non-GAAP financial measures to supplement results under GAAP. In addition, Adjusted EBITDA is a measure that provides useful information to management about the amount of cash available for reinvestment in our business, repurchasing common stock and other purposes. Management believes that the non-GAAP measures presented in this press release, when viewed in combination with our results prepared in accordance with GAAP, provide a more complete understanding of the factors and trends affecting our business and performance.

Adjusted EBITDA and non-GAAP net income are not measures of financial performance under GAAP and should not be considered a substitute for net income, which we consider to be the most directly comparable GAAP measure. Adjusted EBITDA and non-GAAP net income have limitations as analytical tools, and when assessing our operating performance, you should not consider Adjusted EBITDA or non-GAAP net income in isolation, or as a substitute for net income or other consolidated statements of income data prepared in accordance with GAAP. Adjusted EBITDA and non-GAAP net income may not be comparable to similar titled measures of other companies and other companies may not calculate such measures in the same manner as we do.

Conference Call Details:

In conjunction with this announcement, Paycom will host a conference call today, Aug. 1, 2017, at 5:00 p.m. Eastern time to discuss its financial results. To access this call, dial (866) 270-1533 (domestic) or (412) 317-0797 (international) and announce Paycom as the conference name to the operator. A live webcast as well as the replay of the conference call will be available on the Investor Relations page of Paycom’s website at investors.paycom.com. A replay of this conference call can also be accessed by dialing (877) 344-7529 (domestic) or (412) 317-0088 (international) until Aug. 8, 2017. The replay passcode is 10108905.

About Paycom

As a leader in payroll and HR technology, Oklahoma City-based Paycom redefines the human capital management industry by allowing companies to effectively navigate a rapidly changing business environment. Its cloud-based software is based on a core system of record maintained in a single database for all human capital management functions, providing the functionality that businesses need to manage the complete employment lifecycle, from recruitment to retirement. Paycom has the ability to serve businesses of all sizes and in every industry. As one of the leading human capital management providers, Paycom serves clients in all 50 states from sales offices across the country.

Forward-Looking Statements

Certain statements in this press release are, and certain statements on the related teleconference call may be, forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are any statements that refer to the Company’s estimated or anticipated results, other non-historical facts or future events and include, but are not limited to, statements regarding our business strategy; anticipated future operating results and operating expenses, cash flows, capital resources, dividends and liquidity; trends, opportunities and risks affecting our business, industry and financial results; future expansion or growth plans and potential for future growth; our ability to attract new clients to purchase our solution; our ability to retain clients and induce them to purchase additional applications; our ability to accurately forecast future revenues and appropriately plan our expenses; market acceptance of our solution and applications; our expectations regarding future revenues generated by certain applications; the impact of future regulatory, judicial, or legislative changes; how certain factors affecting our performance correlate to improvement or deterioration in the labor market; our plan to open additional sales offices and our ability to effectively execute such plan; the sufficiency of our existing cash and cash equivalents to meet our working capital and capital expenditure needs over the next 12 months; our ability to expand our corporate headquarters within an expected timeframe; our plans regarding our capital expenditures and investment activity as our business grows, including with respect to research and development; our expected income tax rate for future periods; and our plans to purchase shares of our common stock through a stock repurchase plan. In addition, forward-looking statements also consist of statements involving trend analyses and statements including such words as “anticipate,” “believe,” “could,” “expect,” “may,” “might,” “plan,” “possible,” “potential,” “project,” “should,” “would,” and similar expressions or the negative of such terms or other comparable terminology. These forward-looking statements speak only as of the date hereof and are subject to business and economic risks. As such, our actual results could differ materially from those set forth in the forward-looking statements as a result of the factors discussed in our filings with the Securities and Exchange Commission, including but not limited to those discussed in our Annual Report on Form 10-K for the year ended December 31, 2016. We do not undertake any obligation to update or revise the forward-looking statements to reflect events or circumstances that exist after the date on which such statements were made, except to the extent required by law.

    Paycom Software, Inc. Consolidated Balance Sheets (in thousands, except share amounts) (unaudited)         June 30, December 31,   2017     2016   Assets Current assets: Cash and cash equivalents $ 68,117 $ 60,158 Accounts receivable 1,803 1,339 Prepaid expenses 5,737 4,475 Inventory 520 675 Income tax receivable   3,547     692   Current assets before funds held for clients 79,724 67,339 Funds held for clients   787,015     858,244   Total current assets 866,739 925,583 Property and equipment, net 116,957 96,848 Deposits and other assets 1,326 1,215 Goodwill 51,889 51,889 Intangible assets, net 1,065 1,871 Deferred income tax assets, net   7,967     1,207   Total assets $ 1,045,943   $ 1,078,613   Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 3,439 $ 3,737 Accrued commissions and bonuses 5,236 8,003 Accrued payroll and vacation 5,857 4,769 Deferred revenue 6,040 5,230 Current portion of long-term debt 1,139 1,113 Accrued expenses and other current liabilities   19,726     17,798   Current liabilities before client funds obligation 41,437 40,650 Client funds obligation   787,015     858,244   Total current liabilities 828,452 898,894 Long-term deferred revenue 38,964 34,481 Net long-term debt, less current portion   33,479     28,711   Total long-term liabilities   72,443     63,192   Commitments and contingencies Stockholders' equity:

Common stock, $0.01 par value (100,000,000 shares authorized, 59,520,637 and 58,453,283 shares issued at June 30, 2017 and December 31, 2016, respectively; 57,938,217 and 57,331,022 shares outstanding at June 30, 2017 and December 31, 2016, respectively)

595 585 Additional paid-in capital 114,287 95,452 Retained earnings 110,283 70,448

Treasury stock, at cost (1,582,420 and 1,122,261 shares at June 30, 2017 and December 31, 2016, respectively)

  (80,117 )   (49,958 ) Total stockholders' equity   145,048     116,527   Total liabilities and stockholders' equity $ 1,045,943   $ 1,078,613       Paycom Software, Inc. Consolidated Statements of Income (in thousands, except per share and share amounts) (unaudited)       Three Months Ended June 30,     Six Months Ended June 30,   2017         2016     2017         2016   Revenues Recurring $ 96,351 $ 72,492 $ 214,265 $ 161,396 Implementation and other   1,876     1,388     3,470     2,610   Total revenues   98,227     73,880     217,735     164,006   Cost of revenues Operating expenses 15,609 10,479 30,695 21,264 Depreciation and amortization   2,267     1,386     4,327     2,572   Total cost of revenues   17,876     11,865     35,022     23,836   Administrative expenses Sales and marketing 34,070 24,766 70,918 53,428 Research and development 8,095 4,202 14,892 8,062 General and administrative 26,657 15,220 44,483 30,426 Depreciation and amortization   2,440     1,823     4,666     3,546   Total administrative expenses   71,262     46,011     134,959     95,462   Total operating expenses   89,138     57,876     169,981     119,298   Operating income 9,089 16,004 47,754 44,708 Interest expense (281 ) (170 ) (538 ) (481 ) Other income, net   149     116     244     150   Income before income taxes 8,957 15,950 47,460 44,377 Provision for income taxes   (5,264 )   5,529     7,625     15,368   Net income $ 14,221   $ 10,421   $ 39,835   $ 29,009   Earnings per share, basic $ 0.24 $ 0.18 $ 0.69 $ 0.50 Earnings per share, diluted $ 0.24 $ 0.18 $ 0.67 $ 0.49 Weighted average shares outstanding: Basic   57,898,914     57,591,556     57,623,107     57,362,232   Diluted   58,816,442     58,697,229     58,817,181     58,707,213       Paycom Software, Inc. Consolidated Statements of Cash Flows (in thousands) (unaudited)         Six Months Ended June 30,   2017     2016   Cash flows from operating activities Net income $ 39,835 $ 29,009 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 8,993 6,118 Amortization of debt issuance costs 59 63 Net loss on disposition of property and equipment — 3 Stock-based compensation expense 17,524 4,817 Deferred income taxes, net (6,760 ) (4,936 ) Changes in operating assets and liabilities: Accounts receivable (464 ) (421 ) Prepaid expenses (1,262 ) (605 ) Inventory 434 652 Deposits and other assets (111 ) 350 Accounts payable (319 ) 2,619 Income taxes, net (2,855 ) 12,114 Accrued commissions and bonuses (2,767 ) (5,635 ) Accrued payroll and vacation 1,088 3,640 Deferred revenue 5,293 4,675 Accrued expenses and other current liabilities   (3,395 )   2,091   Net cash provided by operating activities   55,293     54,554   Cash flows from investing activities Net change in funds held for clients 71,229 (337,611 ) Purchases of property and equipment   (21,909 )   (24,340 ) Net cash provided by (used in) investing activities   49,320     (361,951 ) Cash flows from financing activities Proceeds from issuance of long-term debt 5,440 3,903 Repurchases of common stock (15,187 ) (3,490 ) Withholding taxes paid related to net share settlement (14,973 ) — Principal payments on long-term debt (562 ) (448 ) Net change in client funds obligation (71,229 ) 337,611 Payment of debt issuance costs   (143 )   —   Net cash (used in) provided by financing activities   (96,654 )   337,576   Increase in cash and cash equivalents 7,959 30,179 Cash and cash equivalents Beginning of period   60,158     50,714   End of period $ 68,117   $ 80,893       Paycom Software, Inc. Reconciliation of GAAP to non-GAAP Financial Measures (in thousands) (unaudited)       Three months ended June 30,   Six months ended June 30,   2017         2016     2017         2016   Net income to Adjusted EBITDA: Net income $ 14,221 $ 10,421 $ 39,835 $ 29,009 Interest expense 281 170 538 481 Provision for income taxes (5,264 ) 5,529 7,625 15,368 Depreciation and amortization expense   4,707     3,209     8,993     6,118   EBITDA 13,945 19,329 56,991 50,976 Non-cash stock-based compensation expense   13,839     3,269     17,527     4,622   Adjusted EBITDA $ 27,784   $ 22,598   $ 74,518   $ 55,598       Three months ended June 30, Six months ended June 30,   2017     2016     2017     2016   Net income to non-GAAP net income: Net income $ 14,221 $ 10,421 $ 39,835 $ 29,009 Non-cash stock-based compensation expense 13,839 3,269 17,527 4,622 Income tax effect on non-GAAP adjustments   (12,883 )   (1,258 )   (14,479 )   (1,762 ) Non-GAAP net income $ 15,177   $ 12,432   $ 42,883   $ 31,869   Weighted average shares outstanding: Basic 57,898,914 57,591,556 57,623,107 57,362,232 Diluted 58,816,442 58,697,229 58,817,181 58,707,213 Earnings per share, basic $ 0.24 $ 0.18 $ 0.69 $ 0.50 Earnings per share, diluted $ 0.24 $ 0.18 $ 0.67 $ 0.49 Non-GAAP net income per share, basic $ 0.26 $ 0.22 $ 0.74 $ 0.56 Non-GAAP net income per share, diluted $ 0.26 $ 0.21 $ 0.73 $ 0.54     Three months ended June 30, Six months ended June 30,   2017     2016     2017     2016   Earnings per share to non-GAAP net income per share, basic: Earnings per share, basic $ 0.24 $ 0.18 $ 0.69 $ 0.50 Non-cash stock-based compensation expense 0.24 0.06 0.30 0.09 Income tax effect on non-GAAP adjustment   (0.22 )   (0.02 )   (0.25 )   (0.03 ) Non-GAAP net income per share, basic $ 0.26   $ 0.22   $ 0.74   $ 0.56       Three months ended June 30, Six months ended June 30,   2017     2016     2017     2016   Earnings per share to non-GAAP net income per share, diluted: Earnings per share, diluted $ 0.24 $ 0.18 $ 0.67 $ 0.49 Non-cash stock-based compensation expense 0.24 0.05 0.30 0.08 Income tax effect on non-GAAP adjustment   (0.22 )   (0.02 )   (0.24 )   (0.03 ) Non-GAAP net income per share, diluted $ 0.26   $ 0.21   $ 0.73   $ 0.54       Three months ended June 30, Six months ended June 30,   2017     2016     2017     2016   Adjusted gross profit: Total revenues $ 98,227 $ 73,880 $ 217,735 $ 164,006 Less: Total cost of revenues   (17,876 )   (11,865 )   (35,022 )   (23,836 ) Total gross profit 80,351 62,015 182,713 140,170 Plus: Non-cash stock-based compensation expense   1,220     301     1,711     414   Total adjusted gross profit $ 81,571 $ 62,316 $ 184,424 $ 140,584 Total gross profit % 82 % 84 % 84 % 85 % Total adjusted gross profit % 83 % 84 % 85 % 86 %     Three months ended June 30, Six months ended June 30,   2017     2016     2017     2016   Adjusted sales and marketing expenses: Sales and marketing expenses $ 34,070 $ 24,766 $ 70,918 $ 53,428 Less: Non-cash stock-based compensation expense   (1,559 )   (792 )   (2,492 )   (1,069 ) Total adjusted sales and marketing expenses $ 32,511   $ 23,974   $ 68,426   $ 52,359     Total revenues $ 98,227 $ 73,880 $ 217,735 $ 164,006 Total adjusted sales and marketing expenses as a % of revenues 33.1 % 32.4 % 31.4 % 31.9 %     Three months ended June 30, Six months ended June 30,   2017     2016     2017     2016   Adjusted administrative expenses: Administrative expenses $ 71,262 $ 46,011 $ 134,959 $ 95,462 Less: Non-cash stock-based compensation expense   (12,619 )   (2,968 )   (15,816 )   (4,208 ) Total adjusted administrative expenses $ 58,643 $ 43,043 $ 119,143 $ 91,254   Total revenues $ 98,227 $ 73,880 $ 217,735 $ 164,006 Total adjusted administrative expenses as a % of revenues 59.7 % 58.3 % 54.7 % 55.6 %     Three months ended June 30, Six months ended June 30,   2017     2016     2017     2016   Adjusted research and development expenses: Research and development expenses $ 8,095 $ 4,202 $ 14,892 $ 8,062 Less: Non-cash stock-based compensation expense   (621 )   (131 )   (780 )   (180 ) Total adjusted research and development expenses $ 7,474 $ 4,071 $ 14,112 $ 7,882   Total revenues $ 98,227 $ 73,880 $ 217,735 $ 164,006 Total adjusted research and development expenses as a % of revenues 7.6 % 5.5 % 6.5 % 4.8 %     Three months ended June 30, Six months ended June 30,   2017     2016     2017     2016   Total research and development costs: Capitalized research and development costs $ 3,507 $ 1,961 $ 6,383 $ 3,707 Research and development expenses   8,095     4,202     14,892     8,062   Total research and development costs $ 11,602   $ 6,163   $ 21,275   $ 11,769     Total revenues $ 98,227 $ 73,880 $ 217,735 $ 164,006 Total research and development costs as a % of total revenues 11.8 % 8.3 % 9.8 % 7.2 %   Total adjusted research and development costs: Total research and development costs $ 11,602 $ 6,163 $ 21,275 $ 11,769 Less: Capitalized non-cash stock-based compensation (968 ) (251 ) (1,317 ) (361 ) Less: Non-cash stock-based compensation expense   (621 )   (131 )   (780 )   (180 ) Total adjusted research and development costs $ 10,013   $ 5,781   $ 19,178   $ 11,228     Total revenues $ 98,227 $ 73,880 $ 217,735 $ 164,006 Total adjusted research and development costs as a % of total revenues 10.2 % 7.8 % 8.8 % 6.8 %     Paycom Software, Inc. Breakout of Non-Cash Stock-Based Compensation Expense (in thousands) (unaudited)                 Three months ended June 30, Six months ended June 30, 2017 2016 2017 2016 Non-cash stock-based compensation expense: Operating expenses $ 1,220 $ 301 $ 1,711 $ 414 Sales and marketing 1,559 792 2,492 1,069 Research and development 621 131 780 180 General and administrative   10,439   2,045   12,544   2,959 Total non-cash stock-based compensation expense $ 13,839 $ 3,269 $ 17,527 $ 4,622

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Paycom Software, Inc.Media Contact:Kathy Oden-Hall, 800-580-4505CMOKathy.Oden-Hall@paycom.comorInvestor Relations Contact:David Niederman, 855-603-1620investors@paycom.com