Paycom Software, Inc. Reports Fourth Quarter and Year-End 2019 Results

Paycom Software, Inc. ("Paycom", "we," and "our") (NYSE: PAYC), a leading provider of comprehensive, cloud-based human capital management software, today announced its financial results for the quarter and year ended December 31, 2019.

"2019 was another exceptional year for Paycom. We strengthened our position in the human capital management industry with new product innovations, unparalleled service and an unrelenting focus on adding value for our clients," said Paycom's founder and CEO, Chad Richison. "Our differentiated product strategy is driving rapid revenue growth, and high employee usage is driving higher annual revenue retention. Based on the strong momentum we are seeing, we believe we are well positioned to deliver an enviable combination of high revenue growth and high margins for years to come."

Financial Highlights for the Fourth Quarter of 2019

Total Revenues of $193.4 million represented a 29% increase compared to total revenues of $150.3 million in the same period last year. Recurring revenues of $190.2 million increased 29% from the comparable prior year period, and constituted 98% of total revenues.

GAAP Net Income was $45.4 million, or $0.78 per diluted share, compared to GAAP net income of $31.4 million, or $0.54 per diluted share, in the same period last year.

Non-GAAP Net Income⁽¹⁾ was $50.5 million, or $0.86 per diluted share, compared to $35.4 million, or $0.61 per diluted share, in the same period last year.

Adjusted EBITDA⁽¹⁾ was $78.6 million, compared to $57.5 million in the same period last year.

Cash and Cash Equivalents were $133.7 million as of December 31, 2019, compared to $45.7 million as of December 31, 2018.

Total Debt, Net was $32.6 million as of December 31, 2019, compared to $34.4 million as of December 31, 2018.

Financial Highlights for the Full Year 2019

Total Revenues of $737.7 million represented a 30% increase compared to total revenues of $566.3 million last year. Recurring revenues of $724.4 million increased 30% from the prior year, and constituted 98% of total revenues.

GAAP Net Income was $180.6 million, or $3.09 per diluted share, compared to GAAP net income of $137.1 million, or $2.34 per diluted share, last year.

Non-GAAP Net Income⁽¹⁾ was $204.6 million, or $3.50 per diluted share, compared to $156.6 million, or $2.67 per diluted share last year.

Adjusted EBITDA⁽¹⁾ was $317.9 million, compared to $240.9 million last year.

⁽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 and other non-GAAP financial measures.

Business Highlights

• Paycom increased its annual revenue retention rate to 93%, up from 92% in 2018 and 91% for each of the preceding six years.
• Paycom introduced several differentiated new products including Direct Data Exchange^TM (an industry first), Ask Here^TM and Manager on-the-Go^TM, all of which focus on greater employee usage and efficiency.
• Paycom earned Best Places to Work in the U.S. honors from Glassdoor for 2020, and the Wall Street Journal listed Paycom as one of the Best Managed Companies in the U.S.
• Paycom was included in the S&P 500 index on January 28, 2020.

Financial Outlook

Paycom provides the following expected financial guidance for the year ending December 31, 2020 and the quarter ending March 31, 2020:

Year Ending December 31, 2020

Total Revenues in the range of $911 million to $913 million.

Adjusted EBITDA in the range of $384 million to $386 million.

Quarter Ending March 31, 2020⁽²⁾

Total Revenues in the range of $240 million to $242 million.

Adjusted EBITDA in the range of $113 million to $115 million.

⁽²⁾ Paycom receives approximately half of its weekly recurring revenue on Wednesday. Because January 1, 2020 fell on a Wednesday, there are only twelve banking Wednesdays in the first quarter ending March 31, 2020 instead of the usual thirteen. Additionally, in the third quarter ending September 30, 2020, there are fourteen banking Wednesdays instead of the usual thirteen. As a result, Paycom expects recurring revenue and, consequently, adjusted EBITDA, to be impacted by approximately a half week of recurring revenue and adjusted EBITDA in the first quarter of 2020, while the third quarter of 2020 will gain approximately one additional half week of recurring revenue and adjusted EBITDA. In the year ending December 31, 2021, each quarter contains thirteen banking Wednesdays.

We have not reconciled the forward-looking adjusted EBITDA ranges presented above and discussed on the teleconference call to net income, nor the forward-looking adjusted EBITDA margins and forward-looking non-GAAP effective income tax rate discussed on the teleconference call to comparable GAAP measures, because applicable information for future periods, on which these reconciliations 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, change in fair value of our interest rate swap and other items. Further, we have not reconciled the forward-looking adjusted gross margin range discussed on the teleconference call to GAAP gross margin 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, cost of revenues, including non-cash stock-based compensation expense. Accordingly, reconciliations of these adjusted EBITDA ranges to net income, the adjusted EBITDA margins to a comparable GAAP measure, the non-GAAP effective income tax rate to the GAAP effective income tax rate and the adjusted gross margin range to gross margin are 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 present certain non-GAAP financial measures in this press release and on the related teleconference call, including adjusted EBITDA, non-GAAP net income, adjusted gross profit, adjusted gross margin, adjusted sales and marketing expenses, adjusted total administrative expenses, adjusted research and development expenses and adjusted total research and development costs. Management uses these non-GAAP financial measures 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, non-cash stock-based compensation expense, certain transaction expenses that are not core to our operations (if any) and the change in fair value of our interest rate swap, (ii) non-GAAP net income as net income plus non-cash stock-based compensation expense, certain transaction expenses that are not core to our operations (if any) and the change in fair value of our interest rate swap, all of which are adjusted for the effect of income taxes, (iii) adjusted gross profit as gross profit plus applicable non-cash stock-based compensation expense, (iv) adjusted gross margin as gross profit plus applicable non-cash stock-based compensation expense, divided by total revenues, (v) each adjusted expense item as the GAAP expense amount less applicable non-cash stock-based compensation expense, (vi) adjusted total research and development costs as total research and development costs (including the capitalized portion) less applicable non-cash stock-based compensation (including the capitalized portion) and (vii) adjusted EBITDA margin as adjusted EBITDA (calculated as described in clause (i)) divided by total revenues. The non-GAAP financial measures presented in this press release and discussed on the related teleconference call 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 and discussed on the related teleconference call, 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.

The non-GAAP financial measures presented in this press release and discussed on the related teleconference call are not measures of financial performance under GAAP and should not be considered a substitute for net income, gross profit, gross margin, research and development expenses, sales and marketing expenses, administrative expenses and total research and development costs. Non-GAAP financial measures have limitations as analytical tools, and when assessing our operating performance, you should not consider these non-GAAP financial measures in isolation, or as a substitute for the consolidated statements of income data prepared in accordance with GAAP. The non-GAAP financial measures that we present 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, February 5, 2020, at 5:00 p.m. Eastern time to discuss its financial results. To access this call, dial (866) 362-4443 (domestic) or (412) 317-5229 (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 February 12, 2020. The replay passcode is 10138137.

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 solution 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 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 Paycom'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; the timeline for construction of our new Texas operations facility; new job creation at our new Texas operations facility; our plans regarding our capital expenditures and investment activity as our business grows; 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 most recent Annual Report on Form 10-K. 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.

⁽¹⁾Amounts have been adjusted to reflect the adoption of Accounting Standards Update No. 2016-18, "Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB Emerging Issues Task Force)."

⁽¹⁾Amounts have been adjusted to reflect the adoption of Accounting Standards Update No. 2016-18, "Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB Emerging Issues Task Force)."