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    Paycom Software Inc (PAYC)

    Board Change

    Paycom Software, Inc. is a leading provider of a comprehensive, cloud-based human capital management (HCM) solution delivered as Software-as-a-Service (SaaS) . The company's solution spans the entire employment lifecycle, offering functionalities such as talent acquisition, time and labor management, payroll, talent management, and human resources management applications . Paycom's software is designed to be user-friendly, enabling employees to self-manage their HCM activities in the cloud, which reduces administrative burdens on employers and enhances employee productivity .

    1. Payroll Applications - Provides comprehensive payroll solutions that are the primary revenue driver, facilitating efficient payroll processing and management.
    2. Talent Acquisition - Offers tools for recruiting and onboarding new employees, streamlining the hiring process.
    3. Time and Labor Management - Manages employee time tracking and labor allocation to optimize workforce productivity.
    4. Talent Management - Supports employee development and performance management to enhance workforce capabilities.
    5. Human Resources Management Applications - Delivers HR solutions that cover various aspects of employee management and compliance.
    Initial Price$198.31April 1, 2024
    Final Price$142.30July 1, 2024
    Price Change$-56.01
    % Change-28.24%

    What went well

    • Paycom leads the industry in automation, with innovative products like Beti and GONE delivering significant ROI for clients. For example, a 2,500-employee company reduced their payroll team by half and decreased payroll processing from 4 days to mere hours by adopting Beti . GONE has automated over 1,000 time-off decisions for a client, freeing up hours of nonproductive time .
    • The company is experiencing strong sales momentum, with a record number of sales representatives added and more units sold this year than in the past . Paycom's sales teams are better staffed than they have been in 5 or 6 years, positioning the company for continued growth .
    • Paycom's focus on client satisfaction is yielding positive results, with Net Promoter Score (NPS) up and trending positively . The enhanced automation and differentiated products are attracting new clients and even returning clients who appreciate the automation lacking in competitors' solutions .

    What went wrong

    • Increased expenses may pressure margins: Paycom has ramped up investments in service and R&D, leading to higher headcount and increased depreciation expenses from bringing a new corporate building online, which has impacted gross margins.
    • Potential reduction in float revenue due to anticipated Fed rate cuts: The company is extending investment durations at lower yields in anticipation of rate cuts, which could reduce float revenue compared to current short-term rates.
    • Limited focus on strategic partnerships: The CEO indicated that partnerships, such as with an employment verification service, are not considered strategic or differentiated, potentially missing growth opportunities through partnerships.

    Q&A Summary

    1. Sales Growth and Unit Sales Increase
      Q: What's driving the sales growth and increased unit sales?
      A: We've focused heavily on sales this year, fully staffing our teams under new leadership. In Q2, we sold 24% more units than the prior year's Q2. July starts are up 40% in revenue, indicating strong momentum.

    2. Guidance Narrowing
      Q: Why did you narrow the guidance outlook?
      A: With more visibility into the timing and magnitude of our initiatives, we're narrowing the guidance range. This is due to timing and better clarity on our plans.

    3. Investments in R&D and Gross Margins
      Q: How are R&D investments affecting margins?
      A: We're investing heavily in product development, doubling our product releases compared to January. This increased R&D expense impacted gross margins, along with depreciation from bringing our fifth building online this quarter.

    4. Beti Adoption and Revenue Impact
      Q: How is Beti adoption impacting revenue and clients?
      A: Beti usage continues to rise monthly, with new clients adopting it more fully. Some clients reduced payroll processing time from 4 days to mere hours and cut payroll staff by half. While Beti improves efficiency, it may reduce revenue from extra payroll runs, but we have mitigating factors.

    5. CapEx Outlook and Free Cash Flow
      Q: What's the outlook for CapEx and free cash flow?
      A: With our last major building project completed, we expect CapEx to be single digits as a percent of revenue next year, which bodes well for free cash flow conversion.

    6. Share Buyback Plans
      Q: How will you approach the extended share buyback?
      A: We've been opportunistic, repurchasing 574,000 shares during Q3 and a large amount since July 1. With the previous program expiring, we've authorized a new $1.5 billion buyback over two years.

    7. Float Revenue and Interest Rates
      Q: How are you managing float revenue amid rate changes?
      A: We're considering extending investment durations to anticipate potential Fed rate cuts. This involves accepting lower rates now to mitigate future rate decreases.

    8. International Expansion of Beti
      Q: Are there plans to expand Beti to more countries?
      A: Yes, as we develop solutions for each country's employment laws, we expect to expand Beti beyond Canada, Mexico, Ireland, and the U.K..

    9. Competitive Landscape
      Q: Any changes in competitive dynamics with new client wins?
      A: No significant changes; we continue to compete with the usual industry players we've faced over our 26-year history.

    10. Back-to-Base Sales and CRR Focus
      Q: How is the back-to-base motion and CRR focus trending?
      A: We're still dedicated to helping clients achieve ROI and fully utilize our products. The CRR approach varies by client, and we haven't made dramatic changes from prior quarters.

    NamePositionStart DateShort Bio
    Chad RichisonCo-Chief Executive Officer, President1998Chad Richison is the Co-Chief Executive Officer, President, and Chairman of the Board of Directors at Paycom Software, Inc. He has been with the company since its founding in 1998 .
    Chris G. ThomasCo-Chief Executive OfficerFebruary 2024Chris G. Thomas has been serving as the Co-Chief Executive Officer of Paycom since February 2024. He joined the company in 2018 and has held various leadership roles .
    Craig E. BoelteChief Financial OfficerFebruary 2006Craig E. Boelte has served as the Chief Financial Officer of Paycom Software, Inc. since February 2006. He also took on the role of Treasurer in May 2017 .
    Jason D. ClarkChief Administrative OfficerDecember 4, 2023Jason D. Clark has served as the Chief Administrative Officer at Paycom since December 4, 2023. Before joining the executive team, he was a member of Paycom's Board of Directors .
    Holly FaurotChief Sales OfficerApril 2021Holly Faurot has served as the Chief Sales Officer at Paycom since April 2021. Prior to this role, she was the Senior Executive Vice President of Sales and Client Relations .
    Bradley S. SmithChief Information OfficerApril 2018Bradley S. Smith has served as the Chief Information Officer at Paycom since April 2018. Before this role, he was Paycom's Director of Software Development .
    Amy WalkerExecutive Vice President of SalesApril 1, 2024Amy Walker was appointed as the Executive Vice President of Sales at Paycom Software, Inc. on April 1, 2024. She has been with the company for nearly 14 years, serving in various senior leadership roles .
    Archana VemulapalliBoard of Directors, Class I DirectorJuly 30, 2024Archana Vemulapalli serves as a Director on the Board of Paycom Software, Inc. She was required to file an initial statement of beneficial ownership of securities on July 30, 2024 .
    Joe BinzBoard of Directors, Class II DirectorDecember 10, 2024Joe Binz was appointed to the Board of Directors of Paycom Software, Inc. as a Class II director on December 10, 2024. He currently serves as the Chief Financial Officer at Atlassian Corporation .
    1. Your revenue guidance for fiscal 2024 indicates approximately 10% year-over-year growth, which is a deceleration compared to previous years. What are the main factors contributing to this slower growth, and how do you plan to address them to return to higher growth rates?

    2. You have raised your adjusted EBITDA margin guidance to approximately 39% for the year. Can you provide more detail on the specific areas where you're achieving greater efficiencies and whether these improvements are sustainable long-term?

    3. With the completion of your fifth building and expectations for CapEx to be single digits as a percent of revenue next year, how will this reduction in capital expenditures impact your operations, and what are your plans for deploying the increased free cash flow?

    4. You mentioned focusing on client value achievement strategies to improve module utilization and ROI for clients. Can you provide specifics on the challenges you've faced in driving adoption of already-sold modules, and how you're addressing these to enhance client satisfaction and retention?

    5. Given the increased staffing in your sales teams and the highly competitive industry, what are the key differentiators in your sales strategy to capture market share from competitors, and how do you see the current economic environment impacting your ability to achieve your sales goals?

    Program DetailsProgram 1Program 2Program 3
    Approval DateNovember 20, 2018 June 7, 2022 August 15, 2022
    End Date/DurationMay 13, 2023 June 7, 2024 August 15, 2024
    Total Additional Amount$300.0 million $550.0 million $1.1 billion
    Remaining AuthorizationN/AN/AN/A
    DetailsExtended authorizationExtended authorizationExtended authorization

    Q3 2024 Earnings Call

    • Issued Period: Q3 2024
    • Guided Period: FY 2024 and Q3 2024
    • Guidance:
      • Full Year 2024 Guidance:
        • Revenue: $1.86 billion to $1.875 billion (10% year-over-year growth at midpoint) .
        • Adjusted EBITDA: $727 million to $737 million (39% margin at midpoint) .
        • Non-GAAP Effective Tax Rate: 26% .
        • Stock-Based Compensation Expense: $30 million per quarter .
      • Third Quarter 2024 Guidance:
        • Revenue: $444 million to $449 million (10% growth at midpoint) .
        • Adjusted EBITDA: $155 million to $159 million (35% margin at midpoint) .
        • Effective Income Tax Rate: 28% on a GAAP basis .

    Q2 2024 Earnings Call

    • Issued Period: Q2 2024
    • Guided Period: FY 2024 and Q3 2024
    • Guidance:
      • Fiscal Year 2024 Guidance:
        • Revenue: $1.86 billion to $1.875 billion (10% year-over-year growth at midpoint) .
        • Adjusted EBITDA: $727 million to $737 million (39% margin at midpoint) .
        • Effective Income Tax Rate: 23% on a GAAP basis, 26% on a non-GAAP basis .
      • Third Quarter 2024 Guidance:
        • Revenue: $444 million to $449 million (10% growth at midpoint) .
        • Adjusted EBITDA: $155 million to $159 million (35% margin at midpoint) .
        • Effective Income Tax Rate: 28% on a GAAP basis, 26% on a non-GAAP basis .
      • Stock-Based Compensation Expense: $30 million per quarter .
      • Capital Expenditures: 11% to 12% of revenue .

    Q1 2024 Earnings Call

    • Issued Period: Q1 2024
    • Guided Period: Q2 2024 and FY 2024
    • Guidance:
      • Second Quarter 2024 Guidance:
        • Total Revenues: $434 million to $438 million (9% growth at midpoint) .
        • Adjusted EBITDA: $151 million to $155 million (35% margin at midpoint) .
        • GAAP Effective Income Tax Rate: 33% .
        • Non-GAAP Effective Tax Rate: 25% .
      • Full Year 2024 Guidance:
        • Total Revenues: $1.860 billion to $1.885 billion (11% year-over-year growth at midpoint) .
        • Adjusted EBITDA: $720 million to $730 million (39% margin at midpoint) .
        • GAAP Effective Income Tax Rate: 22% .
        • Non-GAAP Effective Tax Rate: 25% .
        • Capital Expenditures: Approximately 12% of revenues .

    Q4 2023 Earnings Call

    • Issued Period: Q4 2023
    • Guided Period: Q1 2024 and FY 2024
    • Guidance:
      • Full Year 2024 Guidance:
        • Revenues: $1.860 billion to $1.885 billion (11% year-over-year growth at midpoint) .
        • Adjusted EBITDA: $720 million to $730 million (39% margin at midpoint) .
        • Effective Income Tax Rate: 29% on a GAAP basis, 25% on a non-GAAP basis .
        • Stock-Based Compensation Expense: 8.5% of revenue .
      • First Quarter 2024 Guidance:
        • Total Revenues: $494 million to $497 million (10% growth at midpoint) .
        • Adjusted EBITDA: $218 million to $222 million (44% margin at midpoint) .

    Competitors mentioned in the company's latest 10K filing.

    • Automatic Data Processing, Inc.
    • Cornerstone OnDemand, Inc.
    • Dayforce, Inc.
    • Gusto, Inc.
    • Intuit, Inc.
    • Insperity, Inc.
    • Oracle Corporation
    • Paychex, Inc.
    • Paylocity Holding Corporation
    • Paycor HCM, Inc.
    • People Center, Inc. d/b/a Rippling
    • SAP SE
    • ServiceNow, Inc.
    • Ultimate Kronos Group
    • Workday, Inc.
    • Other international, national, regional, and local providers

    Recent developments and announcements about PAYC.

    Corporate Leadership

      Board Change

      ·
      Dec 12, 2024, 9:47 PM

      Joe Binz has been appointed to the Board of Directors of Paycom Software, Inc., effective December 10, 2024. He will serve as a Class II director and has also been appointed to the audit committee of the Board .