Paycom Software(PAYC) - 2024 Q3 - Quarterly Report

Revenue and Growth - Revenue growth rate and annual revenue retention rate declined in 2023 and remained under pressure throughout 2024[63] - Recurring revenues increased to $445.0 million for the three months ended September 30, 2024, up 11.6$398.7 million in the same period in 2023[65] - Total revenues for the nine months ended September 30, 2024, were $1,389.3 million, a 10.3$1,259.1 million in the same period in 2023[65] - Adjusted EBITDA for Q3 2024 was $171.3 million, compared to$165.6 million in Q3 2023[91] - Net income for Q3 2024 was $73.3 million, compared to$75.2 million in Q3 2023[91] - Earnings per share (diluted) for Q3 2024 was $1.31, compared to$1.30 in Q3 2023[94] - Non-GAAP net income per share (diluted) for Q3 2024 was $1.67, compared to$1.77 in Q3 2023[94] Client and Market Expansion - The company expanded its target client size range to include organizations with more than 10,000 employees in 2023[63] - The company's Global HCM solution and expansion into international markets are expected to attract larger companies with global presence[63] - The company plans to open additional sales offices to further expand market presence[61] - The company's revenue is primarily generated through its sales force and client relations representatives[61] Financial Operations and Cash Flow - The company collects funds from clients in advance, typically disbursed within 1 to 30 days, with some funds held for up to 120 days[63] - The company's average funds held for clients balance and interest earned are expected to increase with new applications and client base expansion[63] - The average daily balance of funds held for clients was $2.4 billion for the nine months ended September 30, 2024, up from$2.2 billion in the same period in 2023[65] - Interest earned on corporate funds decreased to $4.2 million for the three months ended September 30, 2024, compared to$6.5 million in the same period in 2023[75] - Net cash provided by operating activities increased by 7% to $373.513 million for the nine months ended September 30, 2024, compared to$350.569 million in the same period in 2023[83] - Cash provided by investing activities increased by 125% to $33.538 million for the nine months ended September 30, 2024, compared to a negative$135.642 million in the same period in 2023[83] - Cash used in financing activities increased by 149% to $1.089 billion for the nine months ended September 30, 2024, compared to$437.693 million in the same period in 2023[83] - Corporate cash and cash equivalents as of September 30, 2024, totaled $325.8 million[96] - Funds held for clients cash and cash equivalents as of September 30, 2024, totaled$1.4 billion[96] Expenses and Costs - Operating expenses increased by $15.2 million for the three months ended September 30, 2024, primarily due to an$8.9 million increase in employee-related expenses[66] - Research and development expenses increased by $11.2 million for the three months ended September 30, 2024, driven by higher employee-related costs[68] - Capitalized portion of research and development costs increased by 26$33.4 million for the three months ended September 30, 2024, compared to $26.6 million in 2023[69] - General and administrative expenses decreased by$1.2 million for the three months ended September 30, 2024, due to a reduction in employee-related expenses[71] - Non-cash stock-based compensation expense decreased by 27% to $24.2 million for the three months ended September 30, 2024, compared to$33.2 million in 2023[72] - Depreciation and amortization expense increased due to the development of additional technology and the corporate headquarters expansion placed into service in April 2024[73] - Interest expense increased for the three and nine months ended September 30, 2024, due to the timing of the corporate headquarters expansion project[74] - Interest expense for Q3 2024 was $789,000, compared to$222,000 in Q3 2023[91] - Depreciation and amortization for Q3 2024 was $38.1 million, compared to$28.9 million in Q3 2023[91] - Non-cash stock-based compensation expense for Q3 2024 was $24.2 million, compared to$33.2 million in Q3 2023[91] Tax and Financial Commitments - The effective income tax rate for the nine months ended September 30, 2024, was 21.9%, down from 28.1% in the same period in 2023, primarily due to a tax benefit related to the forfeiture of the 2020 CEO Performance Award[76] - The company maintains a $1.0 billion senior secured revolving credit facility, with no outstanding borrowings as of September 30, 2024[77] - The stock repurchase plan was increased to$1.5 billion, with $1.49 billion available for repurchases as of September 30, 2024[78] - Quarterly cash dividends of$0.375 per share were declared, with total cash dividends paid amounting to $20.956 million for the quarter ended September 30, 2024[79][80] - The company repurchased 892,669 shares of common stock at an average cost of$153.70 per share during the nine months ended September 30, 2024[78] - The company committed to annual payments escalating from $4.0 million in 2021 to$6.1 million in 2035 for the naming rights to the Oklahoma City arena[82] Technology and Product Impact - The company's revenue is seasonal, with higher recurring revenues in the first and fourth quarters due to payroll tax filings and unscheduled payroll runs[63] - The company's Beti technology has reduced billable corrections and unscheduled payroll runs, impacting revenue[63] - The company's payroll application is the foundation of its solution, with all clients required to utilize it to access other applications[63]