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Paycom Software Reports 45.4% Revenue Growth in the Fourth Quarter 2014; 40.3% Revenue Growth in Fiscal Year 2014

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Paycom Software, Inc. (NYSE:PAYC) :

Record Fourth Quarter Revenue of $44.0 Million, up 45.4% year-over-year
Record Full Year Revenue of $150.9 Million, up 40.3% year-over-year

Fourth Quarter GAAP and Pro Forma Net Income of $2.5 Million
Fourth Quarter Non-GAAP Net Income of $3.1 Million
Fourth Quarter GAAP and Pro Forma Earnings Per Share of $0.05
Fourth Quarter Non-GAAP Earnings Per Share of $0.06

Full Year GAAP and Pro Forma Net Income of $5.7 Million
Full Year Non-GAAP Net Income of $9.6 Million
Full Year GAAP and Pro Forma Earnings Per Share of $0.11
Full Year Non-GAAP Earnings Per Share of $0.19

Paycom Software, Inc. (“Paycom”) (NYSE:PAYC) , a leading provider of a comprehensive, cloud-based solution for human capital management, today announced its financial results for the quarter and year ended December 31, 2014.

“Our momentum continued through the fourth quarter of 2014,” said Chad Richison, President and Chief Executive Officer of Paycom. “Companies across a wide range of sizes and industries are continuing to discover the benefits offered by the Paycom solution. With Paycom’s five new office openings announced earlier today and the addition of our newly launched learning management system, Paycom Learning, we believe Paycom is well positioned to continue its leadership in the human capital management industry.”

Financial Highlights for the Fourth Quarter of 2014

Total Q4’14 Revenue of $44.0 million increased 45.4% compared to $30.3 million in the same period last year, primarily due to the addition of clients in mature sales offices. Recurring revenues of $43.2 million increased 45.1% from the comparable prior year period, and comprised 98.0% of total revenues.

Q4’14 GAAP Net Income (Loss) was $2.5 million, or $0.05 per diluted share, compared to a loss of $(2.0) million, or $(0.04) per diluted share in the same period last year.

Q4’14 Adjusted EBITDA1 was $7.8 million, compared to $3.5 million in the same period last year.

Q4’14 Pro Forma Net Income (Loss) was $2.5 million, or $0.05 per diluted share, compared to a loss of $(1.3) million, or $(0.03) per diluted share, in the same period last year.

Q4’14 Non-GAAP Net Income (Loss)1 was $3.1 million, or $0.06 per diluted share, compared to a loss of $(0.1) million, or $0.00 per diluted share, in the same period last year.

Q4’14 Annualized New Recurring Revenue (“ANRR”) was $20.6 million, up from $14.3 million for the same period last year, representing 43.8% growth from the comparable prior year period.

Cash and Cash Equivalents were $25.1 million as of December 31, 2014.

Total Debt was $27.0 million as of December 31, 2014. This debt consisted solely of debt on the corporate headquarters.

Financial Highlights for the Full Year 2014

Total Full Year 2014 Revenue of $150.9 million increased 40.3% for the full year 2014 compared to $107.6 million for the full year 2013.

Full Year 2014 GAAP Net Income (Loss) was $5.7 million, or $0.11 per diluted share for the full year 2014, compared to $0.6 million, or $0.01 per diluted share for the full year 2013.

Full Year 2014 Adjusted EBITDA1 was $27.0 million for the full year 2014, compared to $19.9 million for the full year 2013.

Full Year 2014 Pro Forma Net Income (Loss) was $5.7 million, or $0.11 per diluted share for the full year 2014, compared to $0.7 million, or $0.02 per diluted share, for the full year 2013.

Full Year 2014 Non-GAAP Net Income (Loss)1 was $9.6 million, or $0.19 per diluted share for the full year 2014, compared to $2.7 million, or $0.06 per diluted share, for the full year 2013.

Full Year 2014 Annualized New Recurring Revenue (“ANRR”) was $59.6 million, up from $42.1 million for the full year 2013, representing 41.8% growth from the comparable prior year period.

1 Adjusted EBITDA and non-GAAP net income (loss) 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, 2015, and year ending December 31, 2015:

First Quarter 2015

Total Revenues in the range of $49 million to $50 million.

Adjusted EBITDA in the range of $9 million to $10 million.

Fiscal Year 2015

Total Revenues in the range of $194 million to $196 million.

Adjusted EBITDA in the range of $32 million to $34 million.

We have not reconciled the Adjusted EBITDA range for the quarter ending March 31, 2015 or the year ending December 31, 2015 to net income (loss) because applicable information for future periods, on which this reconciliation is 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 (loss) 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 (loss). We use Adjusted EBITDA and non-GAAP net income (loss) 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, net loss on early extinguishment of debt and certain transaction expenses that are not core to our operations and (ii) non-GAAP net income (loss) as pro forma net income plus tax adjusted stock-based compensation expense, tax adjusted net loss on early extinguishment of debt and certain tax adjusted transaction expenses that are not core to our operations. Adjusted EBITDA and non-GAAP net income (loss) 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 (loss) are not measures of financial performance under GAAP, and should not be considered a substitute for net income (loss) or pro forma net income (loss), as applicable, which we consider to be the most directly comparable GAAP measures. Adjusted EBITDA and non-GAAP net income (loss) have limitations as analytical tools, and when assessing our operating performance, you should not consider Adjusted EBITDA and non-GAAP net income (loss) in isolation, or as a substitute for “net income (loss),” “pro forma net income (loss)” or other Condensed Consolidated Statements of Income data prepared in accordance with GAAP. Adjusted EBITDA and non-GAAP net income (loss) 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 10, 2015 at 5:00 p.m. Eastern Time to discuss the company’s financial results. To access this call, dial (888) 317-6003 (domestic) or (412)-317-6061 (international) with conference ID 0213765. A live webcast, as well as the replay of the conference call will be available on the Investor Relations page of the company’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 26, 2015. The replay passcode is 10059646.

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 serves businesses of all sizes and in every industry. As one of the leading human capital management providers, Paycom has 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 provided under the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are made only as of the date hereof. These statements involve known and unknown risks and uncertainties that may cause Paycom’s actual results to differ materially from those stated or implied by such forward-looking statements, as a result of various risks and uncertainties including: changes in the demand for our solution, pricing changes and the impact of competition; changes in technology; our ability to attract, hire and retain skilled employees; our ability to attract and retain clients and increase the number of applications utilized by our clients; our ability to develop and market new applications, improve our existing applications and increase the value of our solution; our ability to maintain or increase our revenues and revenue growth rate; our ability to successfully launch, sustain and drive revenue from new sales offices; the sufficiency of our cash and cash equivalents and cash generated from operations to meet our working capital and capital expenditure requirements; changes in laws regulating payroll taxes and employee benefits; the possibility of a security breach that disrupts operations or exposes client confidential data; and potentially unfavorable outcomes related to pending legal matters.

Other factors that may cause such differences include, but are not limited to, those discussed in our periodic filings with the Securities and Exchange Commission, including those discussed in the prospectus filed with the Securities and Exchange Commission on January 15, 2015, and in particular the section entitled “Risk Factors” of the prospectus. Paycom undertakes 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.

Unaudited Condensed Consolidated Balance Sheets

(In thousands, except share amounts)

December 31,

December 31,
2014 2013
Assets
Current assets:
Cash and cash equivalents $ 25,144 $ 13,362
Restricted cash 371 369
Accounts receivable 2,794 1,705
Prepaid expenses and IPO costs 1,952 2,133
Inventory 195 578
Income tax receivable 935 150
Deferred tax assets 1,445 3,672
Current assets before funds held for clients 32,836 21,969
Funds held for clients 660,557 455,779
Total current assets 693,393 477,748

Property, plant and equipment, net of accumulated depreciation of $17.1 million and $11.5 million, respectively

47,919 38,671
Deposits and other assets 645 461
Goodwill 51,889 51,889

Intangible assets, net of accumulated amortization of $12.1 million and $10.5 million, respectively

5,096 6,709
Total assets $ 798,942 $ 575,478
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable $ 3,042 $ 5,020
Accrued commissions and bonuses 5,080 3,598
Accrued payroll and vacation 1,582 3,087
Deferred revenue 2,535 1,582
Current portion of long-term debt 855 9,545
Accrued expenses and other current liabilities 5,121 4,372
Current liabilities before client funds obligation 18,215 27,204
Client funds obligation 660,557 455,779
Total current liabilities 678,772 482,983
Deferred tax liabilities 3,107 2,895
Long-term deferred revenue 16,802 10,990
Long-term debt, less current portion 26,123 11,545
Long-term debt to related parties 60,875
Derivative liability 1,107
Total long-term liabilities 46,032 87,412
Commitments and contingencies
Stockholders’ equity:
Common stock, $0.01 par value

(100,000,000 shares authorized, 53,832,782 and 45,708,573 shares issued and outstanding at December 31, 2014 and 2013, respectively)

538 457
Additional paid in capital 67,937 33,978
Retained earnings (accumulated deficit) 5,663 (29,349 )
Total parent’s stockholders’ equity 74,138 5,086
Noncontrolling interest (3 )
Total stockholders’ equity 74,138 5,083
Total liabilities and stockholders’ equity $ 798,942 $ 575,478
Paycom Software, Inc.

Unaudited Condensed Consolidated Statements of Income

(In thousands, except share amounts)
Year Ended December 31,
2014 2013 2012
Revenues
Recurring $ 148,207 $ 105,560 $ 75,420
Implementation and other 2,722 2,041

1,390

Total revenues 150,929 107,601 76,810
Cost of revenues
Operating expenses 24,694 19,070 14,895
Depreciation 2,624 1,821 1,431
Total cost of revenues 27,318 20,891 16,326
Administrative expenses
Sales and marketing 63,547 42,681 29,255
Research and development 4,325 2,146 1,632
General and administrative 35,501 28,729 19,372
Depreciation and amortization 4,538 3,682 4,092
Total administrative expenses 107,911 77,238 54,351
Total operating expenses 135,229 98,129 70,677
Operating income 15,700 9,472 6,133
Interest expense (3,421 ) (9,272 ) (6,977 )
Net loss on early repayment of debt (4,044 )
Other income, net 1,421 1,199 354
Income (loss) before income taxes 9,656 1,399 (490 )
Provision (benefit) for income taxes 3,993 792 (84 )
Net income (loss) 5,663 607 (406 )
Net income (loss) attributable to the noncontrolling interest 6 (3 )
Net income (loss) attributable to Paycom $ 5,663 $ 601 $ (403 )
Pro forma additional income tax benefit (137 ) (14 )
Pro forma net income (loss) $ 5,663 $ 738 $ (389 )
Net income (loss) per share, basic $ 0.11 $ 0.01 $ (0.01 )
Net income (loss) per share, diluted $ 0.11 $ 0.01 $ (0.01 )
Pro forma net income (loss) per share, basic $ 0.11 $ 0.02 $ (0.01 )
Pro forma net income (loss) per share, diluted $ 0.11 $ 0.02 $ (0.01 )
Weighted average shares outstanding:
Basic 49,784,154 45,476,895 44,771,559
Diluted 51,857,309 48,062,075 44,771,559
Pro Forma weighted average shares outstanding:
Basic 49,784,154 45,476,895 44,771,559
Diluted 51,857,309 48,062,075 44,771,559
Paycom Software, Inc.

Unaudited Condensed Consolidated Statements of Cash Flows

(in thousands)
Year Ended December 31,
2014 2013 2012
Operating activities
Net income (loss) $ 5,663 $ 607 $ (406 )

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Depreciation and amortization 7,162 5,486 5,522
Gain on sale of property, plant and equipment (248 )
Amortization of debt discount and debt issuance costs 133 258 162
Write off of debt discount 4,051

Stock-based compensation expense

712 934 503
Change in fair value of derivative liability (1,107 ) (660 ) (333 )
Changes in operating assets and liabilities:
Accounts receivable (1,089 ) (1,083 ) (133 )
Prepaid expenses (465 ) (800 ) (395 )
Inventory 267 136 8
Income tax receivable (122 ) (150 )
Deposits and other assets (232 ) (44 ) (75 )
Deferred tax assets 2,227 512 (323 )
Deferred tax liabilities 32 5 159
Accounts payable (2,386 ) 2,667 1,157
Accrued commissions and bonuses 1,482 1,645 1,461
Accrued payroll and vacation (1,505 ) 1,162 351
Deferred revenue 6,765 4,163 2,778
Accrued expenses and other liabilities 749 2,394 538
Net cash provided by operating activities 22,337 16,984 10,974
Investing activities
Increase in funds held for clients (204,778 ) (131,513 ) (71,001 )
Increase in restricted cash (2 ) (1 ) (117 )
Purchases of property, plant and equipment (14,270 ) (17,176 ) (5,971 )
Proceeds from sale of property, plant and equipment 258 106
Net cash used in investing activities (219,050 ) (148,432 ) (76,983 )
Financing activities
Proceeds from issuance of long-term debt 6,538 6,979 1,750
Proceeds from issuance of long-term debt to related party 16,398
Payments on long-term debt (65,650 ) (401 )
Increase in client funds obligation 204,778 131,513 71,001

Proceeds from initial public offering, net of offering costs

62,840
Proceeds from issuance of common shares 2,409
Distributions paid to stockholders as return of capital (18,807 )
Incentive shares redeemed (1,061 )
Payments of deferred offering costs (647 )
Distributions paid to stockholders (5,409 ) (158 )
Payment of debt issuance costs (11 )
Net cash provided by financing activities 208,495 131,375 72,192
Change in cash and cash equivalents 11,782 (73 ) 6,183
Cash and cash equivalents
Beginning of year 13,362 13,435 7,252
End of year $ 25,144 $ 13,362 $ 13,435
Supplemental cash flow disclosure
Cash paid for interest, net of amounts capitalized $ 3,482 $ 9,298 $ 6,834
Cash paid for income taxes 2,013 378 74
Noncash activity
Purchase of property, plant and equipment on account $ 408 $ 368 $ 167

Issuance of common shares as return of capital distribution

46,193
Paycom Software, Inc.
Breakout of Stock-based Compensation Expense
(in thousands)

Year Ended
December 31,

4th Quarter
2014 2013 2014 2013
Stock-based compensation expense: Stock-based compensation expense:
Operating expenses $ 32 $ 222 Operating expenses $ 13 $ 4
Sales and marketing 166 114 Sales and marketing 7 2
Research and development 16 345 Research and development 9 5
General and administrative 498 253 General and administrative 321 (2 )
$ 712 $ 934 $ 350 $ 9
Paycom Software, Inc.
Reconciliation of Net income (loss) to EBITDA and Adjusted EBITDA
(in thousands)

Year Ended
December 31,

4th Quarter
2014 2013 2014 2013
Consolidated statements of income data: Consolidated statements of income data:
Net income $ 5,663 $ 607 Net income (loss) $ 2,506 $ (1,964 )
Interest expense 3,421 9,272 Interest expense 342 2,343
Taxes 3,993 792 Taxes (benefit) 1,965 (419 )
Depreciation and amortization 7,162 5,503 Depreciation and amortization 1,964 1,467
EBITDA 20,239 16,174 EBITDA 6,777 1,427
Stock-based compensation expense 712 934 Stock-based compensation expense 350 9
Transaction expenses 2,004 2,747 Transaction expenses 641 2,084
Net loss on early extinguishment of debt 4,044 Net loss on early extinguishment of debt
Adjusted EBITDA $ 26,999 $ 19,855 Adjusted EBITDA $ 7,768 $ 3,520
Paycom Software, Inc.
Reconciliation of Pro forma net income (loss) to Non-GAAP net income
(in thousands, expect per share amounts)

Year Ended
December 31,

4th Quarter
2014 2013 2014 2013
Consolidated statements of income data: Consolidated statements of income data:
Pro forma net income $ 5,663 $ 738 Pro forma net income (loss) $ 2,506 $ (1,251 )
Tax adjusted stock-based compensation expense 418 495 Tax adjusted stock-based compensation expense 196 4
Tax adjusted transaction expenses 1,175 1456 Tax adjusted transaction expenses 359 1,104
Tax adjusted net loss on early extinguishment of debt 2,372 Tax adjusted net loss on early extinguishment of debt
Non-GAAP net income $ 9,628 $ 2,689 Non-GAAP net income (loss) $ 3,061 $ (143 )
Non-GAAP net income per share, basic $ 0.19 $ 0.06 Non-GAAP net income (loss) per share, basic $ 0.06 $ (0.00 )
Non-GAAP net income per share, diluted $ 0.19 $ 0.06 Non-GAAP net income (loss) per share, diluted $ 0.06 $ (0.00 )
Pro Forma weighted average shares outstanding: Pro Forma weighted average shares outstanding:
Basic 49,784,154 45,476,895 Basic 52,018,730 46,017,666
Diluted 51,857,309 48,062,075 Diluted 53,855,629 46,017,666

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