Paycom Software, Inc. - FORM 8-K - EX-99.1

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8-K - FORM 8-K - Paycom Software, Inc.	d132140d8k.htm

Exhibit 99.1

Paycom Software, Inc. Reports Fourth Quarter and Year-End 2015 Financial Results

Fourth Quarter Revenue of $65.1 Million, up 48% year-over-year

Fourth Quarter Adjusted EBITDA of $10.5 Million, up 35% year-over-year

Fourth Quarter GAAP Net Income of $5.2 Million, or $0.09 per diluted share

Fourth Quarter non-GAAP Net Income of $6.0 Million, or $0.10 per diluted share

Record Full Year 2015 Revenue of $224.7 Million, up 49% year-over-year

Record Full Year 2015 Adjusted EBITDA of $48.1 Million, up 78% year-over-year

Record Full Year 2015 GAAP Net Income of $20.9 Million, or $0.36 per diluted share

Record Full Year 2015 non-GAAP Net Income of $23.4 Million, or $0.40 per diluted share

OKLAHOMA CITY –(BUSINESS WIRE)– 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 and year ended December 31, 2015.

“Our momentum continued in the fourth quarter of 2015, as our entire team came together to cap a remarkable year,” said Chad Richison, Paycom founder and CEO. “Our full-year revenue growth of 49 percent drove revenue to a record $225 million. This growth is a testament to the appeal of our market-leading solution, and also the efforts of our highly motivated sales force. We continue to believe we are in the early innings of a multiyear growth cycle, and have only just begun to leverage the opportunity to introduce our efficient, scalable and easy-to-use software to thousands of companies in our target segment. With our newly launched sales teams in 2014 and 2015 continuing to mature and our research and development growing, we are optimistic that 2016 will yield another year of success and innovation.”

Financial Highlights for the Fourth Quarter of 2015

Total Revenue of $65.1 million represented a 48% increase compared to total revenue of $44.0 million in the same period last year. Recurring revenues of $63.6 million increased 47% from the comparable prior year period, and constituted 98% of total revenues.

GAAP Net Income was $5.2 million, or $0.09 per diluted share, compared to GAAP net income of $2.5 million, or $0.05 per diluted share, in the same period last year.

Adjusted EBITDA¹ was $10.5 million, compared to $7.8 million in the same period last year.

Non-GAAP Net Income¹ was $6.0 million, or $0.10 per diluted share, compared to $3.1 million, or $0.06 per diluted share, in the same period last year.

Annualized New Recurring Revenue (“ANRR”) was $40.6 million, up from $20.6 million for the same period last year, representing 97% growth.

Cash and Cash Equivalents were $50.7 million as of December 31, 2015.

Total Debt was $25.9 million as of December 31, 2015. This debt consisted solely of debt on the corporate headquarters.

Financial Highlights for the Full Year 2015

Total Revenue of $224.7 million represented a 49% increase compared to total revenue of $150.9 million in the same period last year. Recurring revenues of $220.0 million increased 48% from the comparable prior year period, and constituted 98% of total revenues.

GAAP Net Income was $20.9 million, or $0.36 per diluted share, compared to GAAP net income of $5.7 million, or $0.11 per diluted share, in the same period last year.

Adjusted EBITDA¹ was $48.1 million, compared to $27.0 million in the same period last year.

Non-GAAP Net Income¹ was $23.4 million, or $0.40 per diluted share, compared to $9.6 million, or $0.19 per diluted share, in the same period last year.

Annualized New Recurring Revenue (“ANRR”) was $109.0 million, up from $59.6 million for the same period last year, representing 83% growth.

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 March 31, 2016 and year ending December 31, 2016:

Quarter Ending March 31, 2016

Total Revenues in the range of $82 million to $84 million.

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

Year Ending December 31, 2016

Total Revenues in the range of $309 million to $311 million.

Adjusted EBITDA in the range of $63 million to $65 million.

We have not reconciled the Adjusted EBITDA ranges for the quarter ending March 31, 2016 or the year ending December 31, 2016 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, 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. We use Adjusted EBITDA and non-GAAP net income as supplemental measures to review and assess our performance and for planning purposes. We define: (i) Adjusted EBITDA as net income plus interest expense, taxes, depreciation and amortization, stock-based compensation expense, certain transaction expenses that are not core to our operations and net loss on early repayment of debt and (ii) non-GAAP net income as net income plus tax adjusted stock-based compensation expense, certain tax adjusted transaction expenses that are not core to our operations and tax adjusted net loss on early repayment of debt. Adjusted EBITDA and non-GAAP net income are metrics that we believe are useful to investors in evaluating our performance and facilitating comparison with other peer companies, many of which use similar non-GAAP financial measures to supplement results under GAAP.

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 and non-GAAP net income in isolation, or as a substitute for net income or other Condensed 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, February 9, 2016 at 5:00 p.m. Eastern time to discuss its financial results. To access this call, dial (888) 317-6003 (domestic) or (412) 317-6061 (international) and enter conference ID 7761867. 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 23, 2016. The replay passcode is 10078826.

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 has sales offices across the country and serves clients in all 50 states.

Forward-Looking Statements

Certain statements in this press release are, and certain statements on the 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 look to 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 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 revenue generated by certain applications, including Enhanced ACA; alternative ways of addressing human capital management (“HCM”) needs or new technologies generally by us and our competitors; continued acceptance of Software–as-a-Service as an effective method for delivering HCM solutions and other business management applications; the attraction and retention of qualified employees and key personnel; future regulatory, judicial and legislative changes in our industry; how certain factors affecting our performance correlate to improvements or deterioration in the labor market; our plan to open additional sales offices and our ability to effectively execute such plan in the future; 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 create additional jobs at our corporate headquarters; our ability to expand our corporate headquarters within an expected timeframe; our expectation of increasing our capital expenditures and investment activity as our business grows; and our ability to comply with New York Stock Exchange corporate governance standards within prescribed phase-in periods following loss of “controlled company” status. In addition, forward-looking statements also consist of statements involving trend analyses and statements including such words as “may,” “believe,” “could,” “anticipate,” “would,” “might,” “plan,” “expect,” 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 may 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 those discussed in our Quarterly Report on Form 10-Q for the quarter ended September 30, 2015 and our Annual Report on Form 10-K for the year ended December 31, 2014. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by applicable securities laws.

Paycom Software, Inc.

Consolidated Balance Sheets

(in thousands, except share amounts)

(unaudited)


	December 31,
	2015		2014
Assets
Current assets:
Cash and cash equivalents	$	50,714	$	25,144
Restricted cash		—		371
Accounts receivable		2,354		2,794
Prepaid expenses		3,531		1,952
Inventory		1,093		195
Income tax receivable		6,743		935

Current assets before funds held for clients		64,435		31,391
Funds held for clients		696,703		660,557

Total current assets		761,138		691,948
Property and equipment, net		58,858		47,919
Deposits and other assets		1,404		645
Goodwill		51,889		51,889
Intangible assets, net		3,484		5,096

Total assets	$	876,773	$	797,497

Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	4,899	$	3,042
Accrued commissions and bonuses		8,687		5,080
Accrued payroll and vacation		2,898		1,582
Deferred revenue		3,726		2,535
Current portion of long-term debt		886		855
Accrued expenses and other current liabilities		9,735		5,121

Current liabilities before client funds obligation		30,831		18,215
Client funds obligation		696,703		660,557

Total current liabilities		727,534		678,772

Deferred income tax liabilities, net		641		1,662
Long-term deferred revenue		25,310		16,802
Long-term debt, less current portion		24,974		26,123

Total long-term liabilities		50,925		44,587

Commitments and contingencies
Stockholders’ equity:
Common stock, $0.01 par value (100,000,000 shares authorized, 57,119,873 and 53,832,782 shares issued and outstanding at December 31, 2015 and 2014, respectively)		571		538
Additional paid in capital		71,135		67,937
Retained earnings		26,608		5,663

Total stockholders’ equity		98,314		74,138

Total liabilities and stockholders’ equity	$	876,773	$	797,497

Paycom Software, Inc.

Consolidated Statements of Income

(in thousands, except per share and share amounts)

(unaudited)


	For the three months ended December 31,						For the year ended December 31,
	2015			2014			2015			2014
Revenues
Recurring	$	63,583		$	43,177		$	219,987		$	148,207
Implementation and other		1,535			863			4,666			2,722

Total revenues		65,118			44,040			224,653			150,929

Cost of revenues
Operating expenses		9,221			6,847			31,790			24,694
Depreciation and amortization		1,041			748			3,683			2,624

Total cost of revenues		10,262			7,595			35,473			27,318

Administrative expenses
Sales and marketing		30,810			19,310			92,554			63,547
Research and development		2,504			1,447			8,627			4,325
General and administrative		13,750			9,685			47,826			35,501
Depreciation and amortization		1,558			1,216			5,738			4,538

Total administrative expenses		48,622			31,658			154,745			107,911

Total operating expenses		58,884			39,253			190,218			135,229

Operating income		6,234			4,787			34,435			15,700
Interest expense		(360	)		(342	)		(1,427	)		(3,421	)
Net loss on early repayment of debt		—			—			—			(4,044	)
Other income, net		367			26			517			1,421

Income before income taxes		6,241			4,471			33,525			9,656
Provision for income taxes		1,084			1,965			12,580			3,993

Net income	$	5,157		$	2,506		$	20,945		$	5,663

Net income per share, basic	$	0.09		$	0.05		$	0.37		$	0.11
Net income per share, diluted	$	0.09		$	0.05		$	0.36		$	0.11
Weighted average shares outstanding:
Basic		57,109,987			52,018,730			56,495,170			49,784,154
Diluted		58,365,587			53,855,629			57,919,700			51,857,309

Paycom Software, Inc.

Consolidated Statements of Cash Flows

(in thousands)

(unaudited)


	Year Ended December 31,
	2015			2014
Cash flows from operating activities:
Net income	$	20,945		$	5,663
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		9,421			7,162
Loss on disposition of property and equipment		15			—
Amortization of debt discount and debt issuance costs		157			133
Write off of debt issuance costs		—			4,051
Stock-based compensation expense		3,010			712
Employee stock purchase plan compensation expense		209			—
Net change in derivative liability		—			(1,107	)
Deferred income taxes, net		(1,021	)		2,259
Changes in operating assets and liabilities:
Accounts receivable		440			(1,089	)
Prepaid expenses		(1,579	)		(465	)
Inventory		(224	)		267
Deposits and other assets		(810	)		(232	)
Accounts payable		(431	)		(2,386	)
Income taxes, net		(5,808	)		(122	)
Accrued commissions and bonuses		3,607			1,482
Accrued payroll and vacation		1,316			(1,505	)
Deferred revenue		9,699			6,765
Accrued expenses and other current liabilities		4,026			749

Net cash provided by operating activities		42,972			22,337

Cash flows from investing activities:
Increase in funds held for clients		(36,146	)		(204,778	)
Decrease (increase) in restricted cash		371			(2	)
Purchases of property and equipment		(16,549	)		(14,270	)

Net cash used in investing activities		(52,324	)		(219,050	)

Cash flows from financing activities:
Proceeds from issuance of long-term debt		—			6,538
Principal payments on long-term debt		(1,118	)		(65,650	)
Increase in client funds obligation		36,146			204,778
Proceeds from initial public offering, net of offering costs		—			62,840
Payment of debt issuance costs		(106	)		(11	)

Net cash provided by financing activities		34,922			208,495

Change in cash and cash equivalents		25,570			11,782
Cash and cash equivalents
Beginning of year		25,144			13,362

End of year	$	50,714		$	25,144

Supplemental disclosures of cash flow information:
Cash paid for interest, net of amounts capitalized	$	1,271		$	3,482
Cash paid for income taxes		19,205			2,013
Noncash investing and financing activities:
Purchases of property and equipment, accrued but not paid	$	1,613		$	408
Stock based compensation for capitalized software		220			4

Paycom Software, Inc.

Breakout of Stock-Based Compensation Expense

(in thousands)

(unaudited)


	Three months ended December 31,					Year ended December 31,
	2015			2014		2015		2014
Stock-based compensation expense:
Operating expenses	$	115		$	13	$	235	$	32
Sales and marketing		277			7		559		166
Research and development		(31	)		9		104		16
General and administrative		928			321		2,112		498

Total stock-based compensation expense	$	1,289		$	350	$	3,010	$	712

Paycom Software, Inc.

Reconciliation of GAAP to non-GAAP Financial Measures

(in thousands)

(unaudited)


	Three months ended December 31,					Year ended December 31,
	2015			2014		2015		2014
Net income to Adjusted EBITDA:
Net income	$	5,157		$	2,506	$	20,945	$	5,663
Interest expense		360			342		1,427		3,421
Provision for income taxes		1,084			1,965		12,580		3,993
Depreciation and amortization expense		2,599			1,964		9,421		7,162

EBITDA		9,200			6,777		44,373		20,239
Stock-based compensation expense		1,289			350		3,010		712
Transaction expenses		—			641		685		2,004
Net loss on early repayment of debt		—			—		—		4,044

Adjusted EBITDA	$	10,489		$	7,768	$	48,068	$	26,999


	Three months ended December 31,					Year ended December 31,
	2015			2014		2015		2014
Net income to non-GAAP net income
Net income	$	5,157		$	2,506	$	20,945	$	5,663
Tax adjusted stock-based compensation expense⁽¹⁾		884			196		1,881		418
Tax adjusted transaction expenses⁽¹⁾		(7	)		359		623		1,175
Tax adjusted net loss on early repayment of debt⁽¹⁾		—			—		—		2,372

Non-GAAP net income	$	6,034		$	3,061	$	23,449	$	9,628

Non-GAAP net income per share, basic	$	0.11		$	0.06	$	0.42	$	0.19
Non-GAAP net income per share, diluted	$	0.10		$	0.06	$	0.40	$	0.19
Weighted average shares outstanding:
Basic		57,109,987			52,018,730		56,495,170		49,784,154
Diluted		58,365,587			53,855,629		57,919,700		51,857,309

(1)	Beginning in 2015, we use an individual non-GAAP tax rate for each tax adjusted non-GAAP item to determine the amount of non-GAAP net income. Prior to 2015, we used an overall effective tax rate for each tax adjusted non-GAAP item to determine the amount of non-GAAP net income.


	Three months ended December 31,						Year ended December 31,
	2015			2014			2015			2014
Adjusted gross profit:
Total revenues	$	65,118		$	44,040		$	224,653		$	150,929
Less: Total cost of revenues		(10,262	)		(7,595	)		(35,473	)		(27,318	)
Plus: Stock-based compensation expense		115			13			235			32

Total adjusted gross profit	$	54,971		$	36,458		$	189,415		$	123,643
Total adjusted gross profit %		84	%		83	%		84	%		82	%


	Three months ended December 31,						Year ended December 31,
	2015			2014			2015			2014
Adjusted sales and marketing expenses:
Sales and marketing expenses	$	30,810		$	19,310		$	92,554		$	63,547
Less: Stock-based compensation expense		(277	)		(7	)		(559	)		(166	)

Total adjusted sales and marketing expenses	$	30,533		$	19,303		$	91,995		$	63,381

	Three months ended December 31,						Year ended December 31,
	2015			2014			2015			2014
Adjusted research and development expenses:
Research and development expenses	$	2,504		$	1,447		$	8,627		$	4,325
Less: Stock-based compensation expense		31			(9	)		(104	)		(16	)

Total adjusted research and development expenses	$	2,535		$	1,438		$	8,523		$	4,309

	Three months ended December 31,						Year ended December 31,
	2015			2014			2015			2014
Adjusted administrative expenses:
Administrative expenses	$	48,622		$	31,658		$	154,745		$	107,911
Less: Transaction expenses		—			(641	)		(685	)		(2,004	)
Less: Stock-based compensation expense		(1,174	)		(337	)		(2,775	)		(680	)

Total adjusted administrative expenses	$	47,448		$	30,680		$	151,285		$	105,227

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Contacts

Paycom Software, Inc.

Media Contact:

Kathy Oden-Hall, 800-580-4505

CMO

Kathy.Oden-Hall@paycom.com

Investor Relations Contact:

David Niederman, 855-603-1620

investors@paycom.com

Source: Paycom Software, Inc.

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Paycom Software, Inc. - FORM 8-K - EX-99.1 - February 9, 2016

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Paycom Software, Inc. Reports