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What changed in Paycom's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Paycom's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+435 added−366 removedSource: 10-K (2024-02-15) vs 10-K (2023-02-16)

Top changes in Paycom's 2023 10-K

435 paragraphs added · 366 removed · 307 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

94 edited+22 added−14 removed85 unchanged
Biggest changeOur onboarding application streamlines the hiring and termination processes for employees of our clients by creating online checklists of tasks to be assigned to an employee or group of employees. With our application, this process can begin even before a new hire’s first day on the job, helping the new hire be more productive on his or her first day.
Biggest changeBased on client research and feedback, the efficiencies in our system have produced faster turnaround times by as much as three days over our competitors’ offerings. Onboarding . Our onboarding application streamlines the hiring processes for employees of our clients by creating online checklists of tasks to be assigned to an employee or group of employees.
Our Employee Self-Service ® tool allows employees to view the time off they have available, submit requests and view blackout dates, the status of requests and any manager comments. Labor Allocation. Our labor allocation application simplifies the process of setting up and tracking employee hours based on the job the employee is working. Labor Management Reports/Push Reporting® .
Our Employee Self-Service ® tool allows employees to view the time off they have available, submit requests, view blackout dates and view the status of requests and any manager comments. Labor Allocation. Our labor allocation application simplifies the process of setting up and tracking employee hours based on the job the employee is working. Labor Management Reports/Push Reporting ® .
Benefits information and paid time-off accruals also give employees the ability to make informed decisions regarding their benefit selections and time-off requests. Employees can access our self-service software through any device with an internet connection or by downloading the Paycom app on the Google Play® store and the App Store® online store. Compensation Budgeting .
Benefits information and paid time-off accruals also give employees the ability to make informed decisions regarding their benefit selections and time-off requests. Employees can access our self-service software through any device with an internet connection or by downloading the Paycom app on the Google Play ® store and the App Store ® online store. 11 Compensation Budgeting .
This feature reduces errors, eliminates re-keying of data and automatically populates payroll with an effective date. Performance Discussion Forms, part of our PAF tool, allows clients to manage employee conversations related to a variety of topics, including workplace behavior, development opportunities and paths toward a promotion. Surveys .
This feature reduces errors, eliminates re-keying of data and automatically populates payroll with an effective date. Performance Discussion Forms, part of our PAF tool, allows clients to manage employee conversations related to a variety of topics, including workplace behavior, development opportunities and paths toward a promotion. Paycom Surveys .
We are also subject to certain federal, state and local regulations based on the products we offer. For example, as a result of our background screening application, Enhanced Background Checks, we are subject to the Fair Credit Reporting Act and other federal and state background reporting laws.
We are also subject to certain federal, state, local and foreign regulations based on the products we offer. For example, as a result of our background screening application, Enhanced Background Checks, we are subject to the Fair Credit Reporting Act and other federal and state background reporting laws.
Information contained on our website is not incorporated by reference into this Form 10-K. The SEC maintains a public website, www.sec.gov, which includes information about and the filings of issuers that file electronically with the SEC.
Information contained on our website is not incorporated by reference into this Form 10-K. The SEC maintains a public website, www.sec.gov, which includes information about and the filings of issuers that file electronically with the SEC. 18
Our GL concierge application offers organizations more control and transparency into their payroll general ledger and gives finance professionals intuitive reporting, enriched audit trails, customizable file layouts and real-time alerts. Clients of all sizes can utilize a wide variety of general ledger maps along with an action item alert system that improves the dynamics of their daily operations.
Our GL concierge application offers organizations more control and transparency into their payroll general ledger and gives finance professionals intuitive reporting, enriched audit trails, customizable file layouts and real-time alerts. Clients of all sizes can use a wide variety of general ledger maps along with an action item alert system that improves the dynamics of their daily operations.
We recognize Paycom plays an important part in the lives of our employees and strive to create an inclusive workplace where employees feel heard, valued and appreciated for who they are. We continue to work toward a diverse workforce at all employee levels, from entry level to executive. The table below summarizes our workforce demographics as of December 31, 2022.
We recognize Paycom plays an important part in the lives of our employees and strive to create an inclusive workplace where employees feel heard, valued and appreciated for who they are. We continue to work toward a diverse workforce at all employee levels, from entry level to executive. The table below summarizes our workforce demographics as of December 31, 2023.
Once enabled, this time-theft-combatting tool supersedes IP address restrictions, meaning the system first checks for authorized geographical locations, rather than authorized IP addresses. In addition, the Geotracking tool empowers clients to track employees’ geographical locations upon clocking in and out. The coordinates collected by the application can be entered into and viewed on a Google® display map. Microfence™ .
Once enabled, this time-theft-combatting tool supersedes IP address restrictions, meaning the system first checks for authorized geographical locations, rather than authorized IP addresses. In addition, the Geotracking tool empowers clients to track employees’ geographical locations upon clocking in and out. The collected coordinates can be entered into and viewed on a Google ® display map. Microfence ® .
This feature enhances usage patterns and the interactions within organizations among leaders and employees, while distributing the approval responsibilities more broadly, freeing HR personnel. This tool allows managers and supervisors to, among other things, view their team’s time-off calendar, edit and approve punch-change requests, manage employees’ schedules and respond to employee inquiries through Ask Here.
It enhances usage patterns and the interactions within organizations among leaders and employees, while distributing the approval responsibilities more broadly, freeing HR personnel. This tool allows managers and supervisors to, among other things, view their team’s time-off calendar, edit and approve punch-change requests, manage employees’ schedules and respond to employee inquiries through Ask Here.
Employers can also update deduction 12 amounts for all employees or groups of employees at once, which automatically updates all insurance carriers for any changes.
Employers can also update deduction amounts for all employees or groups of employees at once, which automatically updates all insurance carriers for any changes.
This independent assessment of our conformity to the ISO 9001:2015 standard includes assessing the design and implementation of quality objectives to meet delivery standards on an ongoing basis. The certification is valid until April 2023, with continuing assessments taking place annually.
This independent assessment of our conformity to the ISO 9001:2015 standard includes assessing the design and implementation of quality objectives to meet delivery standards on an ongoing basis. The certification is valid until April 2026, with continuing assessments taking place annually.
The system ties job attributes to a specific position within the organization, not an individual employee, which frees up time to focus on people instead of antiquated processes. My Analytics . The my analytics application offers powerful workforce insight in a variety of report formats.
The system ties job attributes to a specific position within the organization, not an individual employee, which frees up time to focus on people instead of antiquated processes. My Analytics . The My Analytics dashboard offers powerful workforce insight in a variety of report formats.
Our Strategy for Growth Our strategy is to continue to establish our solution as the HCM industry standard by increasing our presence in existing markets and expanding into additional markets. We intend to continue to increase our domestic sales capacity as well as expand into international markets.
Our Strategy for Growth Our strategy is to continue to establish our solution as the HCM industry standard by increasing our presence in existing markets and expanding into additional markets. We intend to continue to increase our domestic sales capacity and expand our offering to additional international markets.
Microfence, our proprietary Bluetooth® beacon, is strategically placed in a client’s workplace, enabling employees to clock in or out on their Paycom mobile app as they move within a defined radius. This tool eliminates potential backlog from workers waiting in line at a communal hardware clock and allows them to avoid high-touch areas.
Microfence, our proprietary Bluetooth ® beacon, is strategically placed in a client’s workplace, enabling employees to clock in or out on their Paycom mobile app as they move within a defined radius. It eliminates potential backlog from workers waiting in line at a communal hardware clock and allows them to avoid high-touch areas.
Our application provides employees with “anytime, anywhere” access to a central knowledge base where they can access content, share expertise and measure their professional development progress, while its built-in video content creator allows subject-matter experts to share knowledge across the company by empowering them to create, upload and distribute engaging microlearning content quickly and easily.
It provides employees with “anytime, anywhere” access to a central knowledge base where they can access content, share expertise and measure their professional development progress, while its built-in video content creator allows subject-matter experts to share knowledge across the company by empowering them to create, upload and distribute engaging microlearning content quickly and easily.
Our tax credit services application helps employers process and calculate the available federal tax credits associated with hiring employees who meet various qualifications, ensuring organizations opting into this service receive their share of government-appropriated funds. This application prescreens candidates to determine who is eligible for tax credits. Time and Labor Management Time and Attendance .
Tax Credits. Our tax credits application helps employers process and calculate the available federal tax credits associated with hiring employees who meet various qualifications, ensuring organizations opting into this service receive their share of government-appropriated funds. This application also prescreens candidates to determine who is eligible for tax credits. Time and Labor Management Time and Attendance .
Our training continues for our sales force through weekly strategy sessions and leadership development training. Executive sales representatives are also required to attend quarterly conferences to share best practices and receive legal and business updates.
Our training continues for our sales force through weekly strategy sessions and leadership development training. Executive sales representatives are also required to attend quarterly conferences to share leading practices and receive legal and business updates.
Our web time clock feature allows employees to clock in and out using their mobile device or any device with an internet connection, which automatically updates the payroll application when approved, eliminating the need to manually calculate time sheets and re-key information into payroll systems. Scheduling/Schedule Exchange .
Our web time clock feature allows employees to clock in and out using their mobile device or any device with an internet connection, which automatically updates into the payroll application when approved, eliminating the need to manually calculate time sheets and re-key information into payroll systems. 9 Scheduling .
This central repository for employee questions has a convenient dashboard, guided inquiry template, ability to attach documents and photos and auto-saved responses for commonly asked questions. Documents and Checklists. Our document and checklist application is designed to manage employee files and allows employees to digitally sign and view company documents.
This central repository for employee questions has a convenient dashboard, guided inquiry template, ability to attach documents and photos, and auto-saved responses for commonly asked questions. 12 Documents and Checklists. Our documents and checklists application is designed to manage employee files and allows employees to digitally sign and view company documents.
Employees are able to track hourly worktime without access to a desktop application or kiosk. By tracking employee data accurately and ensuring workers are paid for their hours worked, Microfence helps employers comply with labor laws. Payroll Beti .
Employees can track hourly worktime without access to a desktop or kiosk. By tracking employee data accurately and ensuring workers are paid for their hours worked, Microfence helps employers comply with labor laws. Payroll Beti.
Enhancing our time and attendance solution, Paycom’s Geofencing and Geotracking location-based technology assist our clients in managing the whereabouts of employees while on the job. Geofencing allows employers to establish geographical boundaries within which their employees are authorized to clock in and out when using our web time clock on smartphones, tablets or other electronic devices.
Enhancing our time and attendance application, Paycom’s Geofencing and Geotracking location-based technology assists our clients in managing the whereabouts of employees while on the job. Geofencing allows employers to establish geographical boundaries within which their employees are authorized to clock in and out when using our web time clock on smartphones, tablets or other electronic devices.
Pricing is determined based on employee headcount and the number of applications utilized, enabling our clients to align HCM spending with their evolving HCM needs as compared to traditional HCM products that require clients to migrate to new software as they grow but retain fixed costs even if the client shrinks in size.
Pricing is determined based on employee headcount and the number of applications utilized, enabling our clients to align HCM spending with their evolving HCM needs as compared to traditional HCM products that require clients to migrate to new software as they grow but retain fixed costs even if the client’s employee headcount shrinks.
It also helps streamline the performance review process with online facilitation of the review process and links performance to pay. Position Management . Our position management application provides customizable tools to categorize personnel, increasing consistency and organization company-wide.
It also helps streamline the performance review process with online facilitation of the review process and links performance to pay. Position Management . Our position management application provides customizable tools to categorize personnel, increasing consistency and organization companywide.
Having payroll linked with performance reviews is instrumental for compensation budgeting, which rewards employees fairly while staying within budget. Performance Management . Our performance management application allows employees to set standardized pay grades and performance goals for positions across an organization, helping align company goals with workforce goals.
Having payroll linked with performance reviews is instrumental for compensation budgeting, which rewards employees fairly while staying within budget. Performance Management . Our performance management application allows employees to set performance goals and competencies for positions across an organization, helping align company goals with workforce goals.
The demographic workforce data within the table below, including race and ethnicity, gender and job categories, aligns with the EEO-1 Component 1 data collection reporting requirements outlined by the U.S. Equal Employment Opportunity Commission. As of December 31, 2022 All Employees First/Mid Level Officials & Managers Executive/Sr.
The demographic workforce data within the table below, including race and ethnicity, gender 17 and job categories, aligns with the EEO-1 Component 1 data collection reporting requirements outlined by the U.S. Equal Employment Opportunity Commission, where applicable. As of December 31, 2023 All Employees First/Mid Level Officials & Managers Executive/Sr.
Our client service is ISO 9001:2015 certified and helps support our high client retention rate. 15 Regulatory and Certifications We are subject to varying degrees of regulations in each of the jurisdictions in which we provide services. Local laws and regulations, and their interpretation and enforcement, differ significantly among those jurisdictions.
Our client service is ISO 9001:2015 certified and helps support our high client retention rate. Government Regulation We are subject to varying degrees of regulations in each of the jurisdictions in which we provide services. Local laws and regulations, and their interpretation and enforcement, differ significantly among those jurisdictions.
During 2022, our employees completed thousands of courses utilizing our Paycom learning tool. We provide our sales force with an intensive ten-week training course. Our unique training program includes instruction in accounting, business metrics, application features and tax matters relevant to our target market and we believe it fosters loyalty and helps maintain our corporate culture.
During 2023, our employees completed thousands of courses utilizing our Paycom learning tool. We provide our sales force with intensive training courses. Our unique training program includes instruction in accounting, business metrics, application features and tax matters relevant to our target market and we believe it fosters loyalty and helps maintain our corporate culture.
Paycom Pay eliminates the tedious, risky job of check reconciliation by issuing checks to our clients’ employees that clear from a Paycom bank account, thereby reducing the number of transactions on a client’s general ledger and simplifying bank statement balancing. Expense Management .
Paycom Pay eliminates the tedious, risky job of check reconciliation by issuing checks to our clients’ employees that clear from a Paycom bank account, thereby reducing the number of transactions on a client’s general ledger and simplifying bank statement balancing. Client Action Center ™ .
Operating segments are defined as components of an enterprise about which separate financial information is regularly evaluated by the chief operating decision maker function (which is fulfilled by our chief executive officer) in deciding how to allocate resources and in assessing performance. Our chief executive officer allocates resources and assesses performance based upon financial information at the consolidated level.
Operating segments are defined as components of an enterprise about which separate financial information is regularly evaluated by the chief operating decision maker function (which is fulfilled by our Co-Chief Executive Officers) in deciding how to allocate resources and in assessing performance. Our Co-Chief Executive Officers allocate resources and assess performance based upon financial information at the consolidated level.
The application’s enhanced career site analytics reveal which job boards and marketing efforts produce the best return on investment. Our applicant tracking application not only sends candidates automated job alerts to notify them of a client’s newly posted positions, but allows them to provide their availability up front to discuss potential job opportunities, thereby saving a step for recruiters.
The application’s enhanced career site analytics reveal which job boards and marketing efforts produce the best return on investment. It not only sends candidates automated job alerts to notify them of a client’s newly posted positions but also allows them to provide their availability up front to discuss potential job opportunities, thereby saving a step for recruiters. Candidate Tracker .
In the United States, these include, for example, rules and regulations promulgated under the authority of the Federal Trade Commission, the Health Insurance Portability and Accountability Act of 1996, the Family Medical Leave Act of 1993, the ACA, the Financial Services Modernization Act of 1999, state breach notification laws and state privacy laws, such as the California Consumer Privacy Act of 2018 (the “CCPA”), the California Privacy Rights Act (the “CPRA”) and the Illinois Biometric Information Privacy Act (the “IBIPA”).
In the United States, these include, for example, rules and regulations promulgated under the authority of the Federal Trade Commission, the Health Insurance Portability and Accountability Act of 1996, the Family Medical Leave Act of 1993, the ACA, the Financial Services Modernization Act of 1999, the Gramm-Leach-Bliley Act, state biometric privacy laws, including the Illinois Biometric Information Privacy Act (“IBIPA”), state breach notification laws and state consumer privacy laws, including the California Consumer Privacy Act (“CCPA”), as amended by the California Privacy Rights Act (“CPRA”).
Our schedule exchange application allows employees and managers access to their schedules at any time, and employees can approve, decline or swap their schedules and see what shifts are available for pickup. Email notifications are sent 9 automatically to supervisors and employees when schedules are created, requests for shift exchanges are submitted or a shift change is approved or denied.
It also allows employees and managers access to their schedules at any time, and employees can approve, decline or swap their schedules and see what shifts are available for pickup. Email notifications are sent automatically to supervisors and employees when schedules are created, requests for shift exchanges are submitted or a shift change is approved or denied.
We have approximately 36,600 clients, none of which constituted more than one-half of one percent of our revenues for the year ended December 31, 2022.
We have approximately 36,800 clients, none of which constituted more than one-half of one percent of our revenues for the year ended December 31, 2023.
Manager on-the-Go requires no additional login or user information, providing a seamless toggle between Manager on-the-Go, Employee Self-Service and mileage tracker. Direct Data Exchange. Our comprehensive management analytics tool gives employers insights into efficiencies gained through employee usage of HR technology and provides a real-time return on investment on that usage (based on findings by EY).
Manager on-the-Go provides a seamless toggle between Manager on-the-Go, Employee Self-Service and Mileage Tracker. Direct Data Exchange. Our comprehensive management analytics tool gives employers insights into efficiencies gained through employee usage of HR technology and provides a real-time return on investment on that usage (based on findings by EY).
We securely store client records to meet retention requirements and protect documents from unauthorized access and other disasters that can threaten businesses. Aside from expending fewer resources on paper, printing and file storage, our document and checklist application protects sensitive information and documents by customizing user access levels.
Paycom securely stores client records to meet retention requirements and protect documents from unauthorized access and other disasters that can threaten businesses. Aside from expending fewer resources on paper, printing and file storage, our documents and checklists application protects sensitive information and documents by customizing user access levels.
As we attract clients at the higher end of our target client size range, we may face longer sales cycles and less predictability in completing some of our sales. Competition The market for HCM solutions is rapidly evolving, highly competitive and subject to changing technology, shifting client needs and frequent introduction of new products and services.
As we pursue and attract larger clients, we may face longer sales cycles and less predictability in completing some of our sales. Competition The market for HCM solutions is rapidly evolving, highly competitive and subject to changing technology, shifting client needs and frequent introduction of new products and services.
We will also execute our strategy for growth by targeting larger clients, expanding our inside sales organization and strengthening and extending our solution. Increase Our Presence in Existing Markets We believe a significant market opportunity exists to increase our presence within markets where we currently have a sales office.
We will also execute our strategy for growth by targeting larger clients, capturing small business demand and strengthening and extending our solution. Increase Our Presence in Existing Markets We believe a significant market opportunity exists to increase our presence within markets where we currently have a sales office.
All of our critical systems are fully redundant and backed up at regular intervals to these facilities, and backups are monitored for success and failure status daily. Client data is backed up in real-time among the three data centers.
Each of these data centers is owned and managed by Paycom, and Paycom is the only tenant occupying the data centers. All of our critical systems are fully redundant and backed up at regular intervals to these facilities, and backups are monitored for success and failure status daily. Client data is backed up in real-time among the three data centers.
We also obtain third-party examinations relating to our internal controls over security and privacy in accordance with System and Organization Controls Report, II (“SOC 2”). Our SOC 2 examination is conducted every year by one of the four largest independent international auditing firms, and addresses, among other areas, internal controls around security, availability, processing integrity, confidentiality and privacy.
We also obtain third-party examinations relating to our internal controls over security and privacy in accordance with System and Organization Controls Report, II (“SOC 2”). Our SOC 2 examination is conducted every year and addresses, among other areas, internal controls around security, availability, processing integrity, confidentiality and privacy.
Talent Acquisition Applicant Tracking. Our applicant tracking application simplifies the recruiting processes needed to hire the most qualified employees. By using our all-in-one system, our clients can move candidates from the application process through new employee onboarding without re-keying data.
Our applicant tracking application simplifies the recruiting processes needed to hire the most qualified employees. By using our comprehensive software, our clients can move candidates from the application process through new employee onboarding without re-keying data.
Level Officials & Managers Gender: Female 51.2 % 51.3 % 36.7 % Male 48.8 % 48.7 % 63.3 % Race and Ethnicity: American Indian or Alaskan Native 2.8 % 2.4 % — Asian 9.5 % 4.9 % 3.3 % Black or African American 9.8 % 2.4 % 1.7 % Hispanic or Latino 10.3 % 4.9 % — Native Hawaiian or Pacific Islander 0.3 % 0.2 % — Two or more races 4.1 % 2.2 % — White 63.2 % 83.0 % 95.0 % 17 Training and Development Through the use of our Paycom learning tool, we empower our employees by providing tailored learning paths in areas such as leadership, diversity and inclusion, technical skills and compliance.
Level Officials & Managers Gender: Female 48.8 % 53.0 % 38.1 % Male 49.3 % 45.4 % 60.3 % Non-Binary 0.7 % 0.2 % — Not Specified 1.2 % 1.4 % 1.6 % Race and Ethnicity: American Indian or Alaskan Native 2.3 % 2.5 % — Asian 10.4 % 5.8 % 1.6 % Black or African American 9.2 % 2.9 % — Hispanic or Latino 10.6 % 3.7 % — Native Hawaiian or Pacific Islander 0.3 % 0.2 % — Two or more races 4.1 % 2.5 % — White 58.7 % 76.3 % 96.8 % Not Specified 4.4 % 6.1 % 1.6 % Training and Development Through the use of our Paycom learning tool, we empower our employees by providing tailored learning paths in areas such as leadership, diversity and inclusion, technical skills and compliance.
Today’s employees have little tolerance for complexity, and with our solution, employees have become accustomed to having a direct relationship with their HR database. This relationship is directly correlated with our single-database that is key to increasing usage.
Allowing employees to make changes directly to our database creates efficiencies for both the employer and employee. Today’s employees have little tolerance for complexity, and with our solution, employees have become accustomed to having a direct relationship with their HR database. This relationship is directly correlated with our single-database that is key to increasing usage.
For this reason, we assign each client a specialist within a dedicated team. This one-on-one service is a key part of our client service model and helps to ensure we are delivering an industry-leading solution and maintaining high client satisfaction.
This one-on-one service is a key part of our client service model and helps to ensure we are delivering an industry-leading solution and maintaining high client satisfaction.
We believe that as a result of our focus on client experience, we enjoy high client satisfaction as evidenced by an annual revenue retention rate of 93%, 94% and 93% from existing clients for the years ended December 31, 2022, 2021 and 2020, respectively.
We believe that as a result of our focus on client experience, we enjoy high client satisfaction as evidenced by an annual revenue retention rate of 90% and 91% for the years ended December 31, 2023 and 2022, respectively.
In April 2020, we renewed a certification based on ISO 9001:2015 criteria, a standard for the implementation of quality management processes published by ISO, covering our activities required to create and deliver our solution.
We publish SOC 1 reports semiannually and SOC 2 and SOC 3 reports annually. In April 2023, we renewed a certification based on ISO 9001:2015 criteria, a standard for the implementation of quality management processes published by ISO, covering our activities required to create and deliver our solution.
This team works closely with the client until the client is capable of managing our solution independently, at which time responsibility for the client relationship is transferred to our dedicated CRRs and service specialists. Unlike certain of our competitors, we do not outsource any of our onboarding efforts.
This team works closely with the client until the client is capable of managing our solution independently, at which time responsibility for the client relationship is transferred to our dedicated CRRs and service specialists.
We anticipate that our revenues will continue to exhibit this seasonal pattern related to ACA form filings for so long as the ACA (or replacement legislation) includes employer reporting requirements. Additionally, our fourth quarter recurring revenues are positively impacted by processing unscheduled payroll runs (such as bonuses) for our clients.
Our first quarter recurring revenues are positively impacted by the annual processing of payroll tax filing forms and ACA form filing requirements. We anticipate that our revenues will continue to exhibit this seasonal pattern related to ACA form filings for so long as the ACA (or replacement legislation) includes employer reporting requirements.
In November 2022, we renewed a certification based on ISO/IEC 27001:2013 criteria, a security standard for Information Security Management Systems published by ISO covering our production, quality assurance and implementation environments.
The certification is valid until January 2026, with continuing assessments taking place annually. 16 In November 2022, we renewed a certification based on ISO/IEC 27001:2013 criteria, a security standard for Information Security Management Systems published by ISO covering our production, quality assurance and implementation environments.
This international standard for continuity management specifies requirements to plan, implement, operate and continually improve a documented management system to protect against, prepare for, respond to and recover from disruptive incidents when they arise. The certification is valid until January 2026, with continuing assessments taking place annually.
This international standard for continuity management specifies requirements to plan, implement, operate and continually improve a documented management system to protect against, prepare for, respond to and recover from disruptive incidents when they arise.
Many clients have subsequently deployed additional applications as they recognize the benefits of our comprehensive solution. As we extend and enhance the functionality of our solution, we will continue to invest in initiatives to increase the adoption of our solution and maintain our high levels of client satisfaction.
As we extend and enhance the functionality of our solution, we will continue to invest in initiatives to increase the adoption of our solution and maintain our high levels of client satisfaction.
Our Push Reporting application also gives clients the ability to set up recurring reports and to schedule them to be run automatically and sent to users on a daily, weekly, monthly, quarterly or yearly basis. Geofencing/Geotracking.
Our labor management reports provide clients with up-to-the-minute information that they need to better manage their labor force, such as overtime and labor distribution. Our Push Reporting application also gives clients the ability to set up recurring reports and schedule them to be run automatically and sent to users on a daily, weekly, monthly, quarterly or yearly basis. Geofencing/Geotracking.
Our app has fingerprint and facial recognition capabilities, aiding employers in their efforts to engage technology-dependent workers. Our system also allows employers to engage their workforce through learning management courses and training paths, surveys, and performance goals and reviews. To further enhance the effectiveness of management throughout our clients’ organizations, we also offer easy to use software with Manager on-the-Go®.
Our app has fingerprint and facial recognition capabilities, aiding employers in their efforts to engage technology-dependent workers. Our system also allows employers to engage their workforce through learning management courses and training paths, surveys, and performance goals and reviews.
When appropriate, client questions can be elevated to the specialists with the appropriate application expertise. In addition, our CRRs proactively contact our clients to ensure satisfaction with our solution and introduce additional applications. Expert Level Service Our service specialists are trained across all of our applications to ensure that they can provide comprehensive, expert-level service.
These specialists provide personalized service with a historical knowledge of the clients’ communicated business needs. In addition, our CRRs proactively contact our clients to ensure satisfaction with our solution and introduce additional applications. Expert Level Service Our service specialists are trained across all of our applications to ensure that they can provide comprehensive, expert-level service.
Our competitors offer HCM solutions that may overlap with one, several or all categories of applications and include companies such as Automatic Data Processing, Inc., Ceridian HCM Holding, Inc., Cornerstone OnDemand, 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. and other local and regional providers.
We compete with companies such as 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., and other international, national, regional, and local providers.
The Vault Visa Payroll Card gives employees the financial convenience of allowing them to deposit a portion of their wages on a secure pay card usable with mobile wallets like Apple Pay®, Google Pay® and Samsung Pay®. In certain circumstances, Vault card users also can have access to their pay up to two days earlier for greater financial flexibility.
The Vault Visa ® Payroll Card gives employees the financial convenience of allowing them to deposit all or a portion of their wages on a secure pay card usable with mobile wallets like Apple Pay ® , Google Pay ® and Samsung Pay ® .
Our focus on, and investment in, technology and data security has been recognized with ISO/IEC 27001:2013 certified security standards that provide our clients with a “best-in-class” level of data security. 7 Scalability to Grow with our Clients Our solution is highly scalable.
Our focus on, and investment in, technology and data security has been recognized with ISO/IEC 27001:2013 certified security standards. 7 Scalability to Grow with our Clients Our solution is highly scalable. We serve a diversified client base ranging in size from one employee to many thousands of employees.
Candidate Tracker . Our candidate tracker application enables recruiters to track and stay connected to potential talent through an online database of top candidates. This application helps clients fill future positions faster and without the cost of professional recruiting firms.
Our candidate tracker application enables recruiters to track and stay connected to potential talent through an online database of top candidates. This application helps clients fill future positions faster and without the cost of professional recruiting firms. It also allows clients to assemble a contact history searchable by school, degree, skill set, previous employer, ZIP code radius and follow-up date.
Software Development Our application development team works closely with our clients to enhance our existing application offerings and develop new applications. This process is led by experienced product managers, who oversee the evolution of their respective applications within a focused timeframe of innovation and cultivation in order to deliver the well-developed applications and enhancements desired by our clients.
This process is led by experienced product managers, who oversee the evolution of their respective applications within a focused timeframe of innovation and cultivation in order to deliver the well-developed applications and enhancements desired by our clients. Our product managers are proactive in their approach to assigning development requests based on research, trends and user feedback.
Beti (Better Employee Transaction Interface) is an industry-first technology that further automates and streamlines the payroll process by empowering employees to do their own payroll, which increases efficiencies and reduces errors. Employees already manage all other components of their paychecks, including timecards, expenses, PTO requests and benefits; now they have the convenience within Paycom to process their own payroll, too.
Beti (Better Employee Transaction Interface ™ ) is an industry-first technology that further automates and streamlines the payroll process by empowering employees to do their own payroll, which increases efficiencies and reduces errors.
This sophisticated machine learning technology gives an employer greater insight into employees at risk of leaving the organization. 11 Paycom Learning and Content Subscriptions . Our learning management application delivers a smart, simple, data-driven experience that formalizes and standardizes our clients’ training processes, thereby allowing them to quickly adapt in an ever-changing business environment.
Our learning management application delivers a smart, simple, data-driven experience that formalizes and standardizes our clients’ training processes, thereby allowing them to quickly adapt in an ever-changing business environment.
Dedicated Service Specialists After completing the onboarding process, each client is assigned to a service specialist within a dedicated team. Clients can then contact their dedicated service specialist or a team member if any issues or questions arise. These specialists provide personalized service with a historical knowledge of the clients’ communicated business needs.
Unlike certain of our competitors, we do not outsource any of our onboarding efforts. 15 Dedicated Service Specialists After completing the onboarding process, each client is assigned to a service specialist within a dedicated team. Clients can then contact their dedicated service specialist or a team member if any issues or questions arise.
We have been recognized both locally and nationally for providing our employees with an excellent work environment. We strive to provide a workplace that is free from harassment or discrimination, including harassment or discrimination involving race, color, sex, religion, gender, age, national origin, disability, gender identity or expression, sexual orientation, veteran or marital status.
We strive to provide a workplace that is free from harassment or discrimination, including harassment or discrimination involving race, color, sex, religion, gender, age, national origin, disability, gender identity or expression, sexual orientation, veteran or marital status. We believe that creating this kind of work environment is fundamental to fostering diversity.
We are focusing our investments on the development of new applications, enhancements and learning courses that are responsive to the needs of our clients, which are garnered through ongoing client interaction and collaboration. 8 Our Applications and Tools Our HCM solution offers a full suite of applications and tools that generally fall within the following categories: talent acquisition, time and labor management, payroll, talent management and HR management.
We are focusing our investments on the development of new applications, enhancements and learning courses that are responsive to the needs of our clients, which are garnered through ongoing client interaction and collaboration.
Our sales force is comprised of inside sales and field sales personnel, who are organized geographically, and client relations representatives (“CRRs”), who sell additional applications to existing clients.
Our sales force is comprised of field sales personnel, who are organized geographically, CRRs, who sell additional applications to existing clients, and our emerging markets representatives, who focus on businesses with fewer than 50 employees.
We believe that creating this kind of work environment is fundamental to fostering diversity. Culture and Values Paycom’s purpose is to create technology that simplifies life for employees.
Culture and Values Paycom’s purpose is to create technology that simplifies life for employees.
As of the filing of this Form 10-K, we have 55 sales teams (including one team consisting of CRRs and inside sales representatives) located in 28 states and plan to open additional sales offices to further expand our market presence.
As of the filing of this Form 10-K, we have 55 sales teams (including one team consisting of CRRs and emerging markets representatives) located in 28 states and plan to open additional sales offices to further expand our market presence. 14 When a new client processes payroll with us for an entire month, our sales representative receives a one-time commission based upon an estimate of future annual revenues from such client.
Our competitors range from small, regional firms to large, well-established international firms with multiple product offerings. 13 We compete with firms that provide HCM solutions by various means.
Our competitors range from small, regional firms to large, well-established international firms with multiple product offerings. Our competitors offer HCM solutions that may overlap with one, several or all categories of the applications we offer.
Our Clients We serve a diverse client base in terms of size and industry. We have approximately 36,600 clients, or nearly 19,100 clients based on parent company grouping, none of which constituted more than one-half of one percent of our revenues for the year ended December 31, 2022.
We have approximately 36,800 clients, or nearly 19,500 clients based on parent company grouping, none of which constituted more than one-half of one percent of our revenues for the year ended December 31, 2023. We stored data for over 6.8 million persons employed by our clients during the year ended December 31, 2023.
We develop our solution from the “ground up” with our internal development and engineering teams. Our development and engineering teams, along with our employees, conceive new applications and enhancements, review requests, schedule development in order of priority and subsequently develop the applications or enhancements.
Our development and engineering teams, along with our employees, conceive new applications and enhancements, review requests, schedule development in order of priority and subsequently develop the applications or enhancements. Our new applications and enhancements are independently reviewed by the quality assurance team, in accordance with our software development process, before being fully implemented.
Operations We physically host our solution for our clients in three secure data center facilities located in Oklahoma and Texas. Each of these data centers is owned and managed by Paycom, and Paycom is the only tenant occupying the data centers.
Because a single version of our solution is developed, supported and deployed across all of our clients, the Paycom solution is seamlessly scalable. Operations We physically host our solution for our clients in three secure data center facilities located in Oklahoma and Texas.
E-Verify® . By allowing electronic signature verification and online storage, our E-Verify application automates employment verification and reduces our clients’ exposure to audits and penalties that could result from I-9 violations. Tax Credit Services.
This process can begin even before a new hire’s first day on the job, helping the new hire be more productive on his or her first day. E-Verify ® . By allowing electronic signature verification and online storage, our E-Verify application automates employment verification and reduces our clients’ exposure to audits and penalties that could result from I-9 violations.
Because we offer an all-in-one solution in a single database, the comprehensive report data provides the workforce intelligence needed to drive human capital decisions at all levels of management. We offer employment predictor reporting as part of the my analytics application.
Because we offer a truly single software, the comprehensive report data provides the workforce intelligence needed to drive human capital decisions. We offer employment predictor reporting as part of the My Analytics dashboard. This sophisticated machine learning technology gives an employer greater insight into employees at risk of leaving the organization. Paycom Learning .
Our payroll application is automatically updated with changes in employee information and offers other time-saving functionality such as batch editing and effective dating. Enhanced payroll grid functionality allows clients to automate and delegate payroll functions to accelerate the processes, giving clients repeatable, reliable payroll processing with additional controls.
Our payroll application is the foundation of our solution, and all our clients are required to utilize this application to access our other applications. It is automatically updated with changes in employee information and offers other time-saving functionality such as batch editing and effective dating.
Target Larger Clients and Capture Incremental Small Business Demand The average size of our clients has grown significantly as we have organically grown our operations and increased the number of applications we offer. We believe larger employers represent a substantial opportunity to increase our revenues per client, with limited incremental cost to us.
Target Larger Clients and Capture Incremental Small Business Demand The average size of our clients has grown significantly as we have organically grown our operations and increased the number of applications we offer. We expect that our ability to serve organizations with international employees makes our solution more attractive to larger companies, many of which have a global presence.
By guiding employees to access, view, manage, troubleshoot and approve their paycheck before payroll is submitted, HR can focus on more strategic endeavors. Payroll and Tax Management. Our payroll application is the foundation of our solution, and all our clients are required to utilize this application to access our other applications.
Employees already manage all other components of their paychecks, including timecards, expenses, PTO requests and benefits; now they have the convenience within Paycom to process their own payroll, too. By guiding employees to access, view, manage, troubleshoot and approve their paycheck before payroll is submitted, HR can focus on more strategic endeavors. Payroll and Tax Management.
Our new applications and enhancements are independently reviewed by the quality assurance team, in accordance with our software development process, before being fully implemented. Any enhancements to our applications are released on a monthly scheduled release date to coordinate the communication and release to our clients. Client Service We are committed to providing industry-leading, client-centered service.
Enhancements to our applications are typically released on a monthly scheduled release date to coordinate the communication and release to our clients. Client Service We are committed to providing industry-leading, client-centered service. For this reason, we assign each client a specialist within a dedicated team.
Clients can analyze results by the demographics of the workforce and compare how results change over time. Enhanced ACA. Our Affordable Care Act (“ACA”) application provides clients with access to a dashboard that tracks employee count, employee status, health care plan affordability and ACA periods all from one convenient location and enables Paycom to file IRS Forms 1094/1095-B and/or -C.
Our Affordable Care Act (“ACA”) application provides clients with access to a dashboard that tracks employee count, employee status, health care plan affordability and ACA periods. Plus, it enables Paycom to file IRS Forms 1094/1095-B and/or -C. Clients using this application also have access to additional real-time compliance reports, alerts and historical data for audit trail purposes. Clue ® .
Built within our mobile app, this tool allows for 24/7 accessibility to essential manager-side functionality, giving supervisors and managers the ability to perform a variety of tasks, such as approving time-off requests and expense reimbursements – anytime, anywhere. In addition to our self-service, app-based functionality, we also provide our clients with a strategy to drive usage among their employees.
To further enhance the effectiveness of management throughout our clients’ organizations, we also offer easy to use software with Manager on-the-Go ® . Built within our mobile app, this tool allows for 24/7 accessibility to essential manager-side functionality, giving supervisors and managers the ability to perform a variety of tasks — anytime, anywhere.
Technology, Operations and Security Technology Our multi-tenant architecture enables us to deliver our solution across our client base from a single platform, while securely partitioning access to our clients’ respective application data. Because a single version of our solution is developed, supported and deployed across all of our clients, the Paycom solution is seamlessly scalable.
When an existing client purchases and then utilizes a new application, a CRR receives a one-time commission based upon an estimate of future annual revenues from such client. Technology, Operations and Security Technology Our multi-tenant architecture enables us to deliver our solution across our client base from a single platform, while securely partitioning access to our clients’ respective application data.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changePursuant to the terms of our outstanding indebtedness, we may not, subject to certain exceptions: • create or permit the existence of additional liens on our assets; • incur additional debt; • change the nature of our business; • make investments in and acquisitions of (or acquisitions of substantially all of the assets of) any person; • permit certain fundamental changes, including a merger; • dispose of assets; • make any distributions during an event of default, or any other distributions in excess of $50 million in any fiscal year without demonstrating pro forma compliance with certain financial covenants; • enter into transactions with affiliates other than in the ordinary course of business on an arm’s-length basis; • enter into certain transactions, including swap agreements and sale and leaseback transactions; or • pay dividends or distributions of our capital stock In addition, we are required to maintain as of the end of each fiscal quarter a consolidated interest ratio of earnings before interest, taxes, depreciation and amortization (“EBITDA”) to interest charges of not less than 3.0 to 1.0 and a consolidated leverage 28 ratio of funded indebtedness to EBITDA of not greater than 3.75 to 1.0, stepping down to 3.0 to 1.0 at intervals thereafter.
Biggest changeAlthough we do not currently have any outstanding indebtedness, pursuant to the Credit Agreement (as defined herein) that governs the Revolving Credit Facility, we may not, subject to certain exceptions: • create or permit the existence of additional liens on our assets; • incur additional debt; • change the nature of our business; • make investments in and acquisitions of (or acquisitions of substantially all of the assets of) any person; • permit certain fundamental changes, including a merger; • dispose of assets; • make any distributions during an event of default, or any other distributions in excess of $50 million in any fiscal year without demonstrating pro forma compliance with certain financial covenants; • enter into transactions with affiliates other than in the ordinary course of business on an arm’s-length basis; • enter into certain transactions, including swap agreements and sale and leaseback transactions; or 30 • pay dividends or distributions of our capital stock.
In the future, if our acquisitions do not yield expected returns, we may be required to take charges to our operating results based on this impairment assessment process, which could harm our results of operations. Acquisitions could also result in issuances of equity securities or the incurrence of debt, which would result in dilution to our stockholders.
In the future, if our acquisitions do not yield expected returns, we may be required to take charges to our operating results based on this impairment assessment process, which could harm our results of operations. Acquisitions could also result in the incurrence of debt or issuances of equity securities, which would result in dilution to our stockholders.
In the future, we may experience issues with our computing and communications infrastructure or data centers caused by the following factors: • human error; • telecommunications failures or outages from third-party providers; • computer viruses or cyber attacks; • break-ins or other security breaches; • acts of terrorism, sabotage, intentional acts of vandalism or other misconduct; • tornadoes, fires, earthquakes, hurricanes, floods and other natural disasters; • power loss; and • other unforeseen interruptions or damages.
In the future, we may experience issues with our computing and communications infrastructure or data centers caused by the following factors: • human error; • telecommunications failures or outages from third-party providers; • computer viruses or cyber-attacks; • break-ins or other security breaches; 19 • acts of terrorism, sabotage, intentional acts of vandalism or other misconduct; • tornadoes, fires, earthquakes, hurricanes, floods and other natural disasters; • power loss; and • other unforeseen interruptions or damages.
Factors that may cause our financial results to fluctuate from period to period include, without limitation: • our ability to attract new clients or sell additional applications to our existing clients; • the number of new clients and their employees, as compared to the number of existing clients and their employees in a particular period; • the mix of clients between small, mid-sized and large organizations; • the extent to which we retain existing clients and the expansion or contraction of our relationships with them; • the mix of applications sold during a period; • changes in our pricing policies or those of our competitors; 27 • seasonal factors affecting payroll processing, demand for our applications or potential clients’ purchasing decisions; • the amount and timing of operating expenses, including those related to the maintenance and expansion of our business, operations and infrastructure; • the timing and success of new applications introduced by us and the timing of expenses related to the development of new applications and technologies; • the timing and success of current and new competitive products and services offered by our competitors; • economic conditions affecting our clients, including their ability to outsource HCM solutions and hire employees; • changes in laws, regulations or policies affecting our clients’ legal obligations and, as a result, demand for certain applications; • changes in the competitive dynamics of our industry, including consolidation among competitors or clients; • our ability to manage our existing business and future growth, including expenses related to our data centers and the expansion of such data centers and the addition of new offices; • the effects and expenses of acquisition of third-party technologies or businesses and any potential future charges for impairment of goodwill resulting from those acquisitions; • business disruptions caused by widespread public health crises (such as the COVID-19 pandemic), natural disasters, such as tornadoes, hurricanes, fires, earthquakes and floods, acts of war, terrorism, or other catastrophic events; • network outages or security breaches; and • general economic, industry and market conditions.
Factors that may cause our financial results to fluctuate from period to period include, without limitation: • our ability to attract new clients or sell additional applications to our existing clients; • the number of new clients and their employees, as compared to the number of existing clients and their employees in a particular period; • the mix of clients between small, mid-sized and large organizations; • the extent to which we retain existing clients and the expansion or contraction of our relationships with them; • the mix of applications sold during a period; • changes in our pricing policies or those of our competitors; • seasonal factors affecting payroll processing, demand for our applications or potential clients’ purchasing decisions; • the amount and timing of operating expenses, including those related to the maintenance and expansion of our business, operations and infrastructure; • the timing and success of new applications introduced by us and the timing of expenses related to the development of new applications and technologies; • the timing and success of current and new competitive products and services offered by our competitors; • economic conditions affecting our clients, including their ability to outsource HCM solutions and hire employees; • changes in laws, regulations or policies affecting our clients’ legal obligations and, as a result, demand for certain applications; • changes in the competitive dynamics of our industry, including consolidation among competitors or clients; • our ability to manage our existing business and future growth, including expenses related to our data centers and the expansion of such data centers and the addition of new offices; • the effects and expenses of acquisition of third-party technologies or businesses and any potential future charges for impairment of goodwill resulting from those acquisitions; • business disruptions caused by widespread public health crises (such as the COVID-19 pandemic), natural disasters, such as tornadoes, hurricanes, fires, earthquakes and floods (including as a result of climate change), acts of war, terrorism, or other catastrophic events; • network outages or security breaches; and • general economic, industry and market conditions.
The companies with which we compete for talent may offer work arrangements more flexible than ours, which may impact our ability to attract and retain qualified personnel if potential or current employees prefer such policies. The competition for qualified personnel also may be amplified by new immigration laws or policies that could limit software companies’ ability to recruit internationally.
Certain companies with which we compete for talent offer work arrangements more flexible than ours, which may impact our ability to attract and retain qualified personnel if potential or current employees prefer such policies. The competition for qualified personnel also may be amplified by new immigration laws or policies that could limit software companies’ ability to recruit internationally.
Risks Related to Our Business If our security measures are breached, or unauthorized access to our clients’ or their employees’ sensitive data is otherwise obtained, our solution may not be perceived as being secure, clients may reduce the use of or stop using our solution, our ability to attract new clients may be harmed and we may incur significant liabilities.
Risks Related to Our Business If our security measures are breached, or unauthorized access to our clients’ or their employees’ or potential employees’ sensitive data is otherwise obtained, our solution may not be perceived as being secure, clients may reduce the use of or stop using our solution, our ability to attract new clients may be harmed and we may incur significant liabilities.
Additionally, our responses to any union organizing efforts could negatively impact perception of our brand and have adverse effects on our business, including on our financial results. These responses could also expose us to legal risk, causing us to incur costs related to defending legal and regulatory actions, potential penalties and restrictions or reputational harm.
Additionally, our responses to any union 28 organizing efforts could negatively impact perception of our brand and have adverse effects on our business, including on our financial results. These responses could also expose us to legal risk, causing us to incur costs related to defending legal and regulatory actions, potential penalties and restrictions or reputational harm.
Failure to comply with data protection and privacy laws and regulations could result in regulatory 25 scrutiny and increased exposure to the risk of litigation or the imposition of consent orders or civil and criminal penalties, including fines, which could have an adverse effect on our results of operations or financial condition.
Failure to comply with data protection and privacy laws and regulations could result in regulatory scrutiny and increased exposure to the risk of litigation or the imposition of consent orders or civil and criminal penalties, including fines, which could have an adverse effect on our results of operations or financial condition.
These enactments could adversely affect our sales activity, due to the inherent cost increase the taxes would represent, and ultimately could adversely affect our business, operating results or financial condition. 26 Each state has different rules and regulations governing sales and use taxes, and these rules and regulations are subject to varying interpretations that change over time.
These enactments could adversely affect our sales activity, due to the inherent cost increase the taxes would represent, and ultimately could adversely affect our business, operating results or financial condition. Each state has different rules and regulations governing sales and use taxes, and these rules and regulations are subject to varying interpretations that change over time.
Our results of operations, including our revenues, costs of revenues, administrative expenses, operating income, cash flow and deferred revenue, may vary significantly in the future, and the results of any one period should not be relied upon as an indication of future performance. Fluctuations in our financial results may negatively impact the value of our common stock.
Our results of operations, including our revenues, costs of revenues, administrative expenses, operating income, cash flow and deferred revenue, may vary significantly in the future, and the results of any one period should not be relied upon as an indication of 29 future performance. Fluctuations in our financial results may negatively impact the value of our common stock.
Our applications and services are subject to various complex laws and regulations on the federal, state and local levels, including those governing data security and privacy, which have become significant issues globally. The regulatory framework for privacy issues is rapidly evolving and is likely to remain uncertain for the foreseeable future.
Our applications and services are subject to various complex laws and regulations on the federal, state, local, and foreign levels, including those governing data security and privacy, which have become significant issues globally. The regulatory framework for privacy issues is rapidly evolving and is likely to remain uncertain for the foreseeable future.
In addition, global and regional macroeconomic developments, such as increased unemployment, decreased income, uncertainty related to future economic activity, reduced access to credit, increased interest rates, inflation, volatility in capital markets, and decreased liquidity, among other possible factors, could negatively affect our ability to conduct business.
In addition, global and regional macroeconomic developments, such as 32 increased unemployment, decreased income, uncertainty related to future economic activity, reduced access to credit, increased interest rates, inflation, volatility in capital markets, and decreased liquidity, among other possible factors, could negatively affect our ability to conduct business.
Our business could be adversely affected if we fail to retain these key executives. Although the employment arrangements of certain of our key executives contain restrictive covenants, our business could 21 nonetheless be adversely affected if a key executive leaves Paycom and interferes with Paycom’s client, employee and/or other business relationships.
Our business could be adversely affected if we fail to retain these key executives. Although the employment arrangements of certain of our key executives contain restrictive covenants, our business could nonetheless be adversely affected if a key executive leaves Paycom and interferes with Paycom’s client, employee and/or other business relationships.
The pursuit of potential acquisitions may divert the attention of management and cause us to incur expenses in identifying, investigating and pursuing suitable acquisitions, whether or not they are ultimately consummated. 23 We do not have any experience in acquiring other businesses.
The pursuit of potential acquisitions may divert the attention of management and cause us to incur expenses in identifying, investigating and pursuing suitable acquisitions, whether or not they are ultimately consummated. We do not have any experience in acquiring other businesses.
Furthermore, identifying and recruiting qualified personnel and training them in the use of our applications requires significant time, expense and attention, and it can take a substantial amount of time before our employees are fully trained and productive.
Furthermore, identifying and recruiting qualified personnel and training them in the use of our applications requires significant time, expense and attention, and it can take a 22 substantial amount of time before our employees are fully trained and productive.
While we generally do not track our revenues on an application-by-application basis (because applications are often sold in various groupings and configurations for a single price), we estimate that, if the ACA is not modified or repealed, revenues from our Enhanced ACA application and ACA forms filings business will represent approximately 2% of total projected revenues for the year ending December 31, 2023.
While we generally do not track our revenues on an application-by-application basis (because applications are often sold in various groupings and configurations for a single price), we estimate that, if the ACA is not modified or repealed, revenues from our Enhanced ACA application and ACA forms filings business will represent approximately 2% of total projected revenues for the year ending December 31, 2024.
In addition, if we were to combine our applications with open source software in a certain manner, we could, under certain of the open source licenses, be required to release the source code of our applications.
In addition, if we were to combine our applications with open source software in a certain manner, we could, under certain types of open source licenses, be required to release the source code of our applications.
Our solution involves the collection, storage and transmission of clients’ and their employees’ confidential and proprietary information, including personal identifying information, as well as financial and payroll data.
Our solution involves the collection, storage and transmission of clients’ and their employees’ and potential employees’ confidential and proprietary information, including personal identifying information, as well as financial and payroll data.
However, we may be unaware of the intellectual property rights of others that may cover, or may be alleged to cover, some or all of our solution, applications or brands.
However, we may be 24 unaware of the intellectual property rights of others that may cover, or may be alleged to cover, some or all of our solution, applications or brands.
We will not be able to protect our intellectual property if we are unable to enforce our rights or if we do not detect unauthorized use of our intellectual 22 property.
We will not be able to protect our intellectual property if we are unable to enforce our rights or if we do not detect unauthorized use of our intellectual property.
Any actual or perceived breach of our security could damage our reputation, cause existing clients to discontinue the use of our solution, prevent us from attracting new clients, or subject us to third-party lawsuits, regulatory fines or other actions or liabilities, any of which could adversely affect our business, operating results or financial condition.
Any actual or perceived breach of our security could damage our reputation, cause existing clients to discontinue the use of our solution, prevent us from attracting new clients, or subject us to third-party lawsuits, regulatory investigations and fines or other actions or liabilities, any of which could adversely affect our business, operating results or financial condition.
Although such changes in immigration laws or policies would not have a significant direct impact on our workforce, the ensuing increase in demand for software developers and IT personnel could impair our ability to attract or retain skilled employees and/or significantly increase our costs to do so.
Although we would not expect such changes in immigration laws or policies to have a significant direct impact on our workforce, the ensuing increase in demand for software developers and IT personnel could impair our ability to attract or retain skilled employees and/or significantly increase our costs to do so.
The ability to provide data-driven insights using AI or machine learning may be constrained by current or future regulatory requirements, statutes or ethical considerations that could restrict or impose burdensome and costly requirements on our ability to leverage data in innovative ways.
Our ability to provide data-driven insights using generative AI or machine learning may be constrained by current or future regulatory requirements, statutes or ethical considerations that could restrict or impose burdensome and costly requirements on our ability to leverage data in innovative ways.
Our future success is dependent on our ability to continue to enhance and introduce new applications. As a result, we are heavily dependent on our ability to attract and retain qualified software developers and IT personnel with the requisite education, background and industry experience.
Our future success is dependent on our ability to continue to enhance and introduce new applications. As a result, we are heavily dependent on our ability to attract and retain qualified software developers, product managers and IT personnel with the requisite education, background and industry experience.
We may be sued by third parties for alleged infringement of their proprietary rights. Considerable intellectual property development activity exists in our industry, and we expect that software developers will increasingly be subject to infringement claims as the number of applications and competitors grows and the functionality of applications in different industry segments overlaps.
We may be sued by third parties for alleged infringement of their proprietary rights. Considerable intellectual property development activity exists in our industry, and we expect that companies will increasingly be subject to infringement claims as the number of applications and competitors grows and the functionality of applications in different industry segments overlaps.
If we are unable to respond in a timely and cost-effective manner to these rapid technological developments, our current and future applications may become less marketable and less competitive or even obsolete. Our success is also subject to the risk of future disruptive technologies, such as artificial intelligence (“AI”) and machine learning.
If we are unable to respond in a timely and cost-effective manner to these rapid technological developments, our current and future applications may become less marketable and less competitive or even obsolete. Our success is also subject to the risk of future disruptive technologies, such as AI and machine learning.
Actual results may vary from our guidance and the variations may be material. In light of the foregoing, investors are urged not to rely upon our guidance in making an investment decision regarding our common stock.
Actual results have in the past, and may in the future, vary from our guidance and the variations may be material. In light of the foregoing, investors are urged not to rely upon our guidance in making an investment decision regarding our common stock.
Should other state or federal regulators make a determination that we have operated as an unlicensed money services business or money transmitter, we could be subject to civil and criminal fines, penalties, costs of registration, legal fees, reputational damage or other negative consequences, all of which may have an adverse effect on our business operating results or financial condition.
Should other U.S. state, U.S. federal, or foreign regulators make a determination that we have operated as an unlicensed money services business, money transmitter, or payment services provider, we could be subject to civil and criminal fines, penalties, costs of registration, legal fees, reputational damage or other negative consequences, all of which may have an adverse effect on our business operating results or financial condition.
Certain of our products and services use data-driven insights to help our clients manage their businesses more efficiently. We believe that providing insights from aggregated data, including those insights derived from advanced AI and machine learning, may become increasingly important to the value that our solutions and services deliver to our customers.
Certain of our products and services use data-driven insights to help our clients manage their businesses more efficiently. We believe that providing insights from aggregated data, including those insights derived from generative AI and machine learning, will become increasingly important to the value that our solutions and services deliver to our customers.
Moreover, allegations of non-compliance, whether or not true, could be costly, time consuming, distracting to management, and cause reputational harm. The landscape of privacy laws applicable to our various products and services is evolving quickly. The California Privacy Rights Act (“CPRA”), which expands upon the CCPA, went into effect on January 1, 2023.
Moreover, allegations of non-compliance, whether or not true, could be costly, time consuming, distracting to management, and cause reputational harm. 26 The landscape of privacy laws applicable to our various products and services is evolving quickly. The California Privacy Rights Act (“CPRA”), which expands upon the CCPA, went into effect in 2023.
If new technologies, including but not limited to those that may involve AI or machine learning or be created using AI or machine learning, emerge that are able to deliver HCM solutions at lower prices, more efficiently or more conveniently, such technologies could adversely impact our ability to compete.
If new technologies emerge that are able to deliver HCM solutions at lower prices, more efficiently or more conveniently, including but not limited to those that incorporate AI or machine learning or are created using AI or machine learning, such technologies could adversely impact our ability to compete.
We may also be required to use a substantial portion of our cash flows to pay principal and interest on our debt, which would reduce the amount of money available for operations, working capital, expansion, or other general corporate purposes.
If we borrow in the future, we may be required to use a substantial portion of our cash flows to pay principal and interest on our debt, which would reduce the amount of money available for operations, working capital, expansion, or other general corporate purposes.
We are required to test goodwill for impairment at least annually or earlier if events or changes in circumstances indicate the carrying value may not be recoverable. As of December 31, 2022, we had recorded a total of $51.9 million of goodwill and $54.0 million of other intangible assets, net.
We are required to test goodwill for impairment at least annually or earlier if events or changes in circumstances indicate the carrying value may not be recoverable. As of December 31, 2023, we had recorded a total of $51.9 million of goodwill and $50.1 million of other intangible assets, net.
The failure to effectively manage growth could result in declines in the quality of, or client satisfaction with, our applications, increases in costs, difficulties or delays in introducing new applications or other operational difficulties, any of which could adversely affect our business by impairing our ability to retain and attract clients or sell additional applications to our existing clients.
The failure to effectively manage growth could result in (i) declines in the quality of, or client satisfaction with, our applications or service delivery, (ii) increases in costs, (iii) difficulties or delays in introducing new applications or (iv) other operational difficulties, any of which could adversely affect our business by impairing our ability to retain and attract clients or sell additional applications to our existing clients.
HCM software is often targeted in cyber attacks, including computer viruses, worms, phishing attacks, malicious software programs and other information security breaches, which could result in the unauthorized release, gathering, monitoring, misuse, loss or destruction of our clients’ sensitive data or otherwise disrupt our clients’ or other third parties’ business operations.
HCM software is often targeted in cyber-attacks, including computer viruses, phishing attacks, malicious software programs and other information security breaches, which could result in unauthorized access to or release, gathering, monitoring, misuse, loss or destruction of our or our clients’ sensitive data or otherwise disrupt our or our clients’ business operations.
If we are unable to compete effectively, our business, operating results or financial condition could be adversely affected. Our business, operating results or financial condition could be adversely affected if our clients are not satisfied with our deployment or technical support services, or if our solution fails to perform properly.
Our business, operating results or financial condition could be adversely affected if our clients are not satisfied with our deployment or technical support services, or if our solution fails to perform properly.
Federal, state and local employment-related laws and regulations could increase our cost of doing business and subject us to fines and lawsuits. Our operations are subject to a variety of federal, state and local employment-related laws and regulations, including, but not limited to, the U.S.
Compliance with employment-related laws and regulations could increase our cost of doing business and violations of such laws and regulations could subject us to fines and lawsuits. Our operations are subject to a variety of federal, state, local and international employment-related laws and regulations, including, but not limited to, the U.S.
Furthermore, the impact of such macroeconomic developments may be exacerbated by the COVID-19 pandemic or geopolitical events such as the ongoing military conflict in Ukraine.
Furthermore, the impact of such macroeconomic developments may be exacerbated by the COVID-19 pandemic or geopolitical events such as the ongoing military conflict in Ukraine and the ongoing conflict between Israel and Hamas.
Any loss of or inability to access such funds could have an adverse impact on our cash position and results of operations and could require us to obtain additional sources of liquidity, which may not be available on terms that are acceptable to us, if at all. Item 1B. Unresolve d Staff Comments None.
Any loss of or inability to access such funds could have an adverse impact on our cash position and results of operations and could require us to obtain additional sources of liquidity, which may not be available on terms that are acceptable to us, if at all.
The adoption of new, or adverse interpretations of existing, state and federal money transmitter or money services business statutes could subject us to additional regulation and related expenses and require changes to our business.
The adoption of new, or adverse interpretations of existing U.S. state, U.S. federal, or foreign money transmitter, money services business, or payment services statutes or regulations could subject us to additional regulation and related expenses and require changes to our business.
Although we have security measures in place to protect client information and prevent data loss and other security breaches, these measures could be breached as a result of third-party action, employee error, third-party or employee malfeasance or otherwise.
Although we have security measures in place to protect client information and prevent data loss and other security breaches, these measures have been in the past and in the future may be breached as a result of third-party action, employee error, third-party or employee malfeasance or otherwise.
If we are unsuccessful in establishing or maintaining our relationships with these third parties, our ability to compete in the marketplace or to grow our revenues could be impaired and our business, operating results or financial condition could be adversely affected. Even if we are successful, these relationships may not result in improved operating results.
If we are unsuccessful in establishing or maintaining our relationships with these third parties, our ability to compete in the marketplace or to grow our revenues could be impaired and our business, operating results or financial condition could be adversely affected.
The operating and financial covenants in the loan agreements relating to our outstanding indebtedness, as well as any future financing agreements that we may enter into, may restrict our ability to finance our operations, engage in business activities or expand or fully pursue our business strategies.
The operating and financial covenants in the Credit Agreement, as well as any future financing agreements that we may enter into, may restrict our ability to finance our operations, engage in business activities or expand or fully pursue our business strategies.
The adoption of new money transmitter or money services business statutes in jurisdictions, changes in regulators’ interpretation of existing state and federal money transmitter or money services business statutes or regulations, or disagreements by regulatory authorities with our interpretation of such statutes or regulations, could subject us to registration or licensing or limit business activities until we are appropriately licensed.
The adoption of new money transmitter, money services business, or payment services statutes or regulations in jurisdictions, changes in regulators’ interpretation of existing U.S. state, U.S. federal, or foreign money transmitter, money services business, or payments services statutes or regulations, or disagreements by regulatory authorities with our interpretation of such statutes or regulations, have subjected us to registration or licensing and could limit business activities until we are appropriately licensed.
Globally, cybersecurity attacks are increasing in number and the attackers are increasingly organized and well financed, or at times 18 supported by state actors. In addition, geopolitical tensions or conflicts, such as Russia’s invasion of Ukraine or increasing tension with China, may create a heightened risk of cybersecurity attacks.
Globally, cybersecurity attacks are increasing in number and the threat actors are increasingly organized and well financed, or at times supported by state actors. In addition, geopolitical tensions or conflicts, such as Russia’s invasion of Ukraine, the ongoing conflict between Israel and Hamas, or increasing tension with China, may create a heightened risk of cybersecurity attacks.
In the United States, these include rules and regulations promulgated under the authority of the Federal Trade Commission, the Health Insurance Portability and Accountability Act of 1996, the Family Medical Leave Act of 1993, the ACA, the Financial Services Modernization Act of 1999 (the “GLBA”), federal and state labor and employment laws, and state data breach notification laws and state privacy laws, such as the New York Stop Hacks and Improve Electronic Data Security (SHIELD) Act, the IBIPA and the CCPA, which was passed in California in 2020.
In the United States, these include numerous state-level consumer privacy laws, beginning with California’s CCPA, the IBIPA, rules and regulations promulgated under the authority of the Federal Trade Commission, the Health Insurance Portability and Accountability Act of 1996, the Family Medical Leave Act of 1993, the ACA, the Financial Services Modernization Act of 1999 (the “GLBA”), federal and state labor and employment laws, state data breach notification laws, and state cybersecurity laws, such as the New York Stop Hacks and Improve Electronic Data Security (SHIELD) Act.
Additionally, because certain of our clients rely on government resources to fund their operations, a prolonged government shutdown may affect such clients’ ability to make timely payments to us, which could adversely affect our operations results or financial condition.
Additionally, because certain of our clients rely on government resources to fund their operations, a prolonged government shutdown may affect such clients’ ability to make timely payments to us, which could adversely affect our operations results or financial condition. Item 1B. Unresolve d Staff Comments None. 33
While we maintain that we are not a money services business or money transmitter, we have adopted an anti-money laundering (“AML”) compliance program to mitigate the risk of our application being used for illegal or illicit activity and to help detect and prevent fraud. Our AML compliance program is designed to foster trust in our application and services.
We have adopted an anti-money laundering compliance program to mitigate the risk of our application being used for illegal or illicit activity and to help detect and prevent fraud. Our AML compliance program is designed to foster trust in our application and services.
Projections are based upon a number of assumptions and estimates that, while presented with numerical specificity, are inherently subject to significant business, economic, and competitive uncertainties and contingencies, many of which are beyond our control.
Projections are based upon a number of assumptions and estimates that, while presented with numerical specificity, are inherently subject to significant business, economic, and competitive uncertainties and contingencies, many of which are beyond our control. Projections are also based upon specific assumptions with respect to future business decisions, some of which will change.
We are dependent on the continued service of our key executives and, if we fail to retain such key executives, our business could be adversely affected. We believe that our success depends in part on the continued services of our key executives, consisting of Chad Richison, Craig E. Boelte, Bradley S. Smith, Holly Faurot, and Justin Long.
We are dependent on the continued service of our key executives and, if we fail to retain such key executives, our business could be adversely affected. We believe that our success depends in part on the continued services of our key executives, consisting of Chad Richison, Chris Thomas, Craig Boelte, Jason Clark, Brad Smith and Holly Faurot.
As a result, our organizational structure and recording systems and procedures are becoming more complex as we improve our operational, financial and management controls. Our success depends, in part, on our ability to manage this growth and organizational change effectively.
As a result, our organizational structure and recording systems and procedures are becoming more complex as we improve our operational, financial and management controls. Our success depends, in part, on our ability to manage this growth and organizational change effectively. Moreover, our international expansion efforts are exacerbating many of these challenges.
We anticipate that we will continue to depend on various third-party relationships in order to grow our business, provide technology and content support, manufacture time clocks, process background checks and deliver payroll checks and tax forms. Identifying, negotiating and documenting relationships with these third parties and integrating third-party content and technology requires significant time and resources.
We also rely on third parties to provide technology and content support, manufacture time clocks and process background checks. We anticipate that we will continue to depend on various third-party relationships in order to provide these and other services. Identifying, negotiating and documenting relationships with these third parties and integrating third-party content and technology requires significant time and resources.
Our reported financial results may be adversely affected by changes in accounting principles generally accepted in the United States. Generally accepted accounting principles in the United States are subject to interpretation by the Financial Accounting Standards Board (“FASB”), the SEC and various bodies formed to promulgate and interpret appropriate accounting principles.
Generally accepted accounting principles in the United States are subject to interpretation by the Financial Accounting Standards Board (“FASB”), the SEC and various bodies formed to promulgate and interpret appropriate accounting principles.
We rely on third-party couriers, financial and accounting processing systems, and various financial institutions, to deliver payroll checks and tax forms, perform financial services in connection with our applications, such as providing automated clearing house (“ACH”) and wire transfers as part of our payroll and tax payment services and to provide technology and content support, manufacture time clocks and process background checks.
We rely on third-party couriers to deliver payroll checks and tax forms and on financial and accounting processing systems and various financial institutions to perform financial services in connection with our applications, such as providing automated clearing house (“ACH”) and wire transfers as part of our payroll and tax payment services and facilitating our Vault Visa Payroll Card.
Any failure to successfully implement our operating strategy or the occurrence of any of the events or circumstances set forth in this “Risk Factors” section in this Form 10-K could result in the actual operating results being different from our guidance, and the differences may be adverse and material.
Any failure to successfully implement our operating strategy or the occurrence of any of the events or circumstances set forth in this “Risk Factors” section in this Form 10-K could result in the actual operating results being different from our guidance, and the differences may be adverse and material. 31 Our reported financial results may be adversely affected by changes in accounting principles generally accepted in the United States.
The IBIPA includes a private right of action for persons who are aggrieved by violations of the IBIPA. The GLBA is enforced under the authority of the Federal Trade Commission and requires our payment card services to adhere to a privacy notice and take certain measures to protect related personal information from unauthorized use and threats to data security.
The GLBA is enforced under the authority of the Federal Trade Commission and requires our payment card services to adhere to a privacy notice and take certain measures to protect related personal information from unauthorized use and threats to data security.
The failure to develop and maintain our brand cost-effectively could have an adverse effect on our business. We believe that developing and maintaining widespread awareness of our brand in a cost-effective manner is critical to achieving widespread acceptance of our solution and is an important element in attracting new clients and retaining existing clients.
We believe that developing and maintaining widespread awareness of our brand in a cost-effective manner is critical to achieving widespread acceptance of our solution and is an important element in attracting new clients and retaining existing clients.
While we conduct background checks of our employees and limit access to systems and data, it is possible that one or more of these individuals may circumvent these controls, resulting in a security breach.
While we conduct background checks of our employees and limit access to systems and data, it is possible that one or more of these individuals may circumvent these controls, resulting in a security breach. In certain limited circumstances, we utilize relationships with third parties to aid in data management and transaction processing.
Any failure to maintain high-quality technical support, or a market perception that we do not maintain high-quality technical support, could adversely affect client retention, our reputation, our ability to sell our applications to existing and prospective clients, and, as a result, our business, operating results or financial condition.
Any failure to maintain high-quality technical support, or a market perception that we do not maintain high-quality technical support, could adversely affect client retention, our reputation, our ability to sell our applications to existing and prospective clients, and, as a result, our business, operating results or financial condition. 21 Further, our solution is inherently complex and may in the future contain, or develop, undetected defects or errors.
As our employees are located in a number of states, compliance with these evolving federal, state and local laws and regulations could substantially increase our cost of doing business.
As our employees are located in a number of states and we are beginning to hire internationally, compliance with evolving laws and regulations could substantially increase our cost of doing business.
In addition, we have not purchased key person life insurance on any of our key executives. If we are unable to attract and retain qualified personnel, including software developers and skilled IT, sales, marketing and operational personnel, our ability to develop and market new and existing products and, in turn, increase our revenue and profitability could be adversely affected.
If we are unable to attract and retain qualified personnel, including software developers, product managers and skilled IT, sales, marketing and operational personnel, our ability to develop and market new and existing products and, in turn, increase our revenue and profitability could be adversely affected.
Our agreements with third parties typically are non-exclusive and do not prohibit them from working with our competitors. In addition, these third parties may not perform as expected under our agreements, and we may have disagreements or disputes with such third parties, which could negatively affect our brand and reputation.
Our agreements with third parties typically are non-exclusive and do not prohibit them from working with our competitors. In addition, these third parties may not perform as expected under our agreements, which could hinder our ability to deliver certain services to our clients and negatively affect our brand and reputation.
If we are unable to maintain effective internal control over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock may be negatively affected.
Any such material charges may have a negative impact on our operating results or financial condition. If we are unable to maintain effective internal control over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock may be negatively affected.
A breach of any of the covenants under our loan agreements could result in an event of default, which could cause all of our outstanding indebtedness to become immediately due and payable. If our goodwill or other intangible assets become impaired, we may be required to record a significant charge to earnings.
A breach of any of the covenants under our Credit Agreement could result in an event of default, which could result in the acceleration of any outstanding indebtedness or foreclosure on our assets pledged to secure the indebtedness. If our goodwill or other intangible assets become impaired, we may be required to record a significant charge to earnings.
Projections are also based upon specific assumptions with respect to future business decisions, some of which will change. 29 The principal reason that we release guidance is to provide a basis for our management to discuss our business outlook with analysts and investors. We do not accept any responsibility for any projections or reports published by any third parties.
The principal reason that we release guidance is to provide a basis for our management to discuss our business outlook with analysts and investors. We do not accept any responsibility for any projections or reports published by any third parties.
The costs incurred in correcting any application defects may be substantial and could adversely affect our business, operating results or financial condition.
Any defects in our applications could adversely affect our reputation, impair our ability to sell our applications in the future and result in significant costs to us. The costs incurred in correcting any application defects may be substantial and could adversely affect our business, operating results or financial condition.
In addition, pricing pressures and increased competition generally could result in reduced sales, reduced margins, losses or the failure of our solution to maintain widespread market acceptance, any of which could adversely affect our business, operating results or financial condition. We compete with firms that provide HCM solutions by various means.
In addition, pricing pressures and increased competition generally could hinder our ability to attract and retain clients and could result in reduced sales, reduced margins, losses or the failure of our solution to maintain widespread market acceptance, any of which could adversely affect our business, operating results or financial condition.
As a result, some of these competitors may be able to: • adapt more rapidly to new or emerging technologies and changes in client requirements; • develop superior products or services, gain greater market acceptance and expand their product and service offerings more efficiently or rapidly; • offer products and services that we may not offer individually or at all, or bundle products and services in a manner that provides them with a price advantage; • establish and maintain partnerships with third parties that enhance and expand their product offering to business clients and employees; • take advantage of acquisition and other opportunities for expansion more readily; • maintain a lower cost basis; • adopt more aggressive pricing policies and devote greater resources to the promotion, marketing and sale of their products and services; and • devote greater resources to the research and development of their products and services.
Certain of our competitors have in the past or may in the future: • adapt more rapidly to new or emerging technologies and changes in client requirements; • develop superior products or services, gain greater market acceptance and expand their product and service offerings more efficiently or rapidly; 20 • offer products and services that we may not offer individually or at all, or bundle products and services in a manner that provides them with a price advantage; • offer products that can be integrated with other software or systems, whereas our single software may not allow for such integration; • develop and implement control processes that drive internal efficiencies, resulting in a better client experience; • establish and maintain partnerships with third parties that enhance and expand their product offering to business clients and employees; • take advantage of acquisition and other opportunities for expansion more readily; • maintain a lower cost basis; • secure contractual terms and implement other client retention strategies that increase our costs to acquire new clients; • adopt more aggressive or desirable pricing policies; • devote greater resources to the promotion, marketing and sale of their products and services; and • devote greater resources to the research and development of their products and services.
In addition, to continue to execute our growth strategy, we must also attract and retain qualified sales, marketing and operational personnel capable of supporting a larger and more diverse client base. The software industry is characterized by a high level of employee mobility and aggressive recruiting among competitors.
In addition, to continue to execute our growth strategy, we must also attract and retain qualified sales, marketing and operational personnel capable of supporting a larger and more diverse client base.
If we are unable to successfully develop enhancements, new features or new applications to meet client needs, our business and operating results could be adversely affected. 19 In addition, because our applications are designed to operate on a variety of network, hardware and software platforms using internet tools and protocols, we must continuously modify and enhance our applications to keep pace with changes in internet-related hardware, software, communication, browser and database technologies.
In addition, because our applications are designed to operate on a variety of network, hardware and software platforms using internet tools and protocols, we must continuously modify and enhance our applications to keep pace with changes in internet-related hardware, software, communication, browser and database technologies.
Moreover, our clients generally have the right to cancel their agreements with us for any or no reason by providing 30 days’ prior written notice. In the past, some of our clients have elected not to continue to use our applications.
Generally, our clients have no obligation to continue to use our applications and have the right to cancel their agreements with us for any or no reason by providing 30 days’ prior written notice. Moreover, from time to time, clients choose not to continue to use our applications at the same or higher level of service, if at all.
Our competitors offer HCM solutions that may overlap with one, several or all categories of applications and include companies such as Automatic Data Processing, Inc., Ceridian HCM Holding, Inc., Cornerstone OnDemand, 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., and other local and regional providers.
We compete with companies such as Automatic Data Processing, Inc., Dayforce, Inc., Cornerstone OnDemand, 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., and other international, national, regional, and local providers.
As a result, we could be subject to suits by parties claiming ownership of what we believe to be open source software. Litigation could be costly for us to defend, have a negative effect on our operating results and financial condition or require us to devote additional development resources to change our applications.
Litigation could be costly for us to defend, have a negative effect on our operating results and financial condition or require us to devote additional development resources to change our applications.
The market in which we participate is highly competitive, and if we do not compete effectively, our business, operating results or financial condition could be adversely affected. The market for HCM software is highly competitive, rapidly evolving and fragmented. We expect competition to intensify in the future with the introduction of new technologies and new market entrants.
The market for HCM software is highly competitive, rapidly evolving and fragmented. If we are unable to compete effectively, our business, operating results or financial condition could be adversely affected. We expect competition to continue to intensify as new technologies and new market entrants emerge and increasingly aggressive pricing strategies persist.
In addition, our cyber liability insurance policy may not cover all claims made against us, and defending a suit, regardless of its merit, could be costly and divert management’s attention from our business and operations.
In addition, our cyber liability insurance policy may cover only a portion of losses incurred in investigating or remediating an incident, if at all, and may not cover all claims made against us. Undergoing a government investigation or defending a lawsuit, regardless of merit, could be costly and divert management’s attention from our business and operations.
If cybercriminals are able to circumvent our security measures, or if we are unable to detect an intrusion into our systems and contain such intrusion in a reasonable amount of time, our clients’ sensitive data may be compromised. Certain of our employees have access to sensitive information about our clients’ employees.
If threat actors are able to circumvent our security measures and we are unable to detect or contain such intrusion into our system, our or our clients’ sensitive data (including client employees’ personal data) may be compromised. Further, in order to provide our services, certain of our employees have access to sensitive information about our clients’ employees.
Further, because some of our clients have establishments internationally, the GDPR and other foreign data privacy laws may impact our processing of certain client and employee information.
Because some of our clients are located in Mexico and other clients have establishments internationally, Canada’s PIPEDA, Mexico’s Federal Law on the Protection of Personal Data, and other foreign data privacy laws, such as the GDPR, may impact our processing of certain client and employee information.
A period of failure to reach agreement on these matters, particularly if accompanied by an actual or threatened government shutdown, may have an adverse impact on the U.S. economy.
In recent years, there have been several instances when there has been uncertainty regarding the ability of Congress and the President collectively to reach agreement on federal budgetary and spending matters. A period of failure to reach agreement on these matters, particularly if accompanied by an actual or threatened government shutdown, may have an adverse impact on the U.S. economy.
Virginia recently passed its own consumer data privacy statute modeled on the CCPA, which also went into effect on January 1, 2023. New data privacy statutes are slated to go into effect later this year in Colorado, Connecticut and Utah.
Virginia, Colorado, Connecticut and Utah recently enacted their own consumer data privacy statutes, many of which are modeled on the CCPA. New data privacy statutes are slated to go into effect later this year in Delaware, Indiana, Iowa, Montana, Oregon, Tennessee, and Texas.
Our business depends on the overall demand for HCM applications and on the economic health of our current and prospective clients.
General Risks Adverse economic and market conditions could affect our business, operating results or financial condition. Our business depends on the overall demand for HCM applications and on the economic health of our current and prospective clients.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeIn addition to housing two fully redundant data centers at our corporate headquarters in Oklahoma City, we operate another fully redundant data center at our Grapevine facility. As of December 31, 2022, we lease offices in 28 states.
Biggest changeIn addition to housing two fully redundant data centers at our corporate headquarters in Oklahoma City, we operate another fully redundant data center at our Grapevine facility. As of December 31, 2023, we lease offices in 28 states and in certain international locations.
Item 2. P roperties Our corporate headquarters is an approximately 500,000-square-foot campus located on over 150 acres of Company-owned property in Oklahoma City, Oklahoma. In 2022, we commenced construction of a new 315,000-square-foot building at our Oklahoma City headquarters. We also have an operations facility on approximately 14 acres of Company-owned property in Grapevine, Texas.
Item 2. P roperties Our corporate headquarters is an approximately 500,000-square-foot campus located on over 150 acres of Company-owned property in Oklahoma City, Oklahoma. We are currently constructing a 315,000-square-foot building at our Oklahoma City headquarters. We also have an operations facility on approximately 14 acres of Company-owned property in Grapevine, Texas.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeItem 3. Legal P roceedings From time to time, we are involved in various disputes, claims, suits, investigations and legal proceedings arising in the ordinary course of business. We believe that the resolution of current pending legal matters will not have a material adverse effect on our business, financial condition, results of operations or cash flows.
Biggest changeChad Richison, et al., Case No. 1:24-cv-00046-UNA. 36 We believe that the resolution of current pending legal matters will not have a material adverse effect on our business, financial condition, results of operations or cash flows.
Nonetheless, we cannot predict the outcome of these proceedings, as legal matters are subject to inherent uncertainties, and there exists the possibility that the ultimate resolution of these matters could have a material adverse effect on our business, financial condition, results of operations or cash flows. For additional information, see “Note 13. Commitments and Contingencies” in this Form 10-K.
Nonetheless, we cannot predict the outcome of these proceedings, as legal matters are subject to inherent uncertainties, and there exists the possibility that the ultimate resolution of these matters could have a material adverse effect on our business, financial condition, results of operations or cash flows. Item 4. Mine Saf ety Disclosures None. 37 PART II
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Item 4. Mine Saf ety Disclosures None. 31 PART II
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Item 3. Legal P roceedings From time to time, we are involved in various disputes, claims, suits, investigations and legal proceedings arising in the ordinary course of business, including commercial, intellectual property and employment-related matters, as well as stockholder derivative actions, class action lawsuits and other matters.
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The litigation matters described below involve issues or claims that may be of particular interest to our stockholders, regardless of whether any of these matters are material to our business or financial condition based upon the standard set forth in the SEC’s rules.
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We believe we have substantial defenses in each matter and we intend to vigorously defend against the claims brought by plaintiffs in these lawsuits. On August 22, 2023, an individual on behalf of herself and her two minor children filed a class action lawsuit against our wholly owned subsidiary, Paycom Payroll, LLC, in the District Court of Oklahoma County.
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See Carmen Johnson et al. v. Paycom, No. CJ-2023-4763. The complaint relates to the previously disclosed cybersecurity incident involving a third-party vendor, MOVEit, and alleges claims and damages resulting from that matter, including claims for negligence, breach of implied contract, invasion of privacy, unjust enrichment and a request for declaratory and injunctive relief.
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On November 10, 2023, a stockholder filed a securities class action lawsuit against the Company, Chad Richison (in his capacity as Chief Executive Officer) and Craig Boelte (in his capacity as Chief Financial Officer), in the U.S.
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District Court, Western District of Oklahoma, on behalf of a class of acquirers of Company securities between May 3, 2023 and November 1, 2023. See Angelo Ventrillo Jr. v. Paycom Software, Inc., et al., Case Number CIV-23-1019-F. Similar securities class action lawsuits, involving substantially similar allegations, have also been filed. See Minarik v.
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Paycom Software, Inc., et al., Case Number 5:24-CV-00014-J in the United States District Court for the Western District of Oklahoma; Schoenrock v. Paycom Software, Inc., et al., Case Number 5:24-CV-00012-F in the United States District Court for the Western District of Oklahoma; and Caloto v.
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Paycom Software, Inc., et al., Case Number 5:24-cv-00019-R in the United States District Court for the Southern District of New York (transferred to the Western District of Oklahoma on January 9, 2024). The plaintiffs are currently seeking consolidation, designation as lead plaintiff and certification as class representative under Rule 23 of the Federal Rules of Civil Procedure.
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The plaintiffs have brought multiple claims, including for violations of the federal securities laws under the Exchange Act, on behalf of persons or entities who purchased or otherwise acquired publicly traded Paycom securities during a disputed class period.
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Plaintiffs claim they incurred losses based on materially false and misleading statements made by the defendants during the class period, which led plaintiffs to invest in Paycom securities. The plaintiffs are seeking remedies including, but not limited to, compensatory damages, reimbursement of out-of-pocket costs, and injunctive relief.
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On January 12, 2024, a stockholder filed a stockholder derivative complaint in the U.S. District Court, District of Delaware, against the Company and the members of the Board of Directors, invoking the allegations set forth in the Ventrillo, Caloto, Schoenrock and Minarik lawsuits described above. The complaint alleges breaches of fiduciary duties and violations of federal law.
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The plaintiffs seek to recover unspecified monetary damages on behalf of the Company. See Chelsey Moon, Derivatively on Behalf of Nominal Defendant Paycom Software, Inc., v.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThe cumulative total return of the S&P 1500 Application Software Index is presented in the graph above as required by Item 201(e)(4) of Regulation S-K. 32 Purchases of Equity Securities The number of shares of common stock repurchased by us during the three months ended December 31, 2022 is set forth below: Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1) Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (1) October 1 - 31, 2022 (2) 25 $ 329.14 25 $ 1,099,777,000 November 1 - 30, 2022 (2) 442 $ 329.75 442 $ 1,099,632,000 December 1 - 31, 2022 (2) — $ — — $ 1,099,632,000 Total 467 467 (1) Pursuant to a stock repurchase plan announced on November 20, 2018, we were authorized to purchase (in the aggregate) up to $150.0 million of our common stock in open market purchases, privately negotiated transactions or by other means.
Biggest changePurchases of Equity Securities The number of shares of common stock repurchased by us during the three months ended December 31, 2023 is set forth below: Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1) Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (1) October 1 - 31, 2023 (2) 27 $ 268.26 27 $ 1,012,011,000 November 1 - 30, 2023 (3) 708,197 $ 172.81 708,197 $ 889,625,000 December 1 - 31, 2023 (4) 484,127 $ 187.01 484,127 $ 799,088,000 Total 1,192,351 1,192,351 (1) Pursuant to a stock repurchase plan announced on November 20, 2018, we were authorized to purchase (in the aggregate) up to $150.0 million of our common stock in open market purchases, privately negotiated transactions or by other means.
On June 7, 2022, we announced that our Board of Directors increased the availability under the existing stock repurchase plan to $550.0 million and extended the expiration date to June 7, 2024.
On June 7, 2022, we announced that our Board of Directors increased the availability under the existing stock repurchase plan to $550.0 million and extended the expiration 39 date to June 7, 2024.
The following graph compares the cumulative total stockholder return on our common stock with the cumulative total return of the S&P 500 Index, the S&P 500 Software & Services Index, and the S&P 1500 Application Software Index during the five-year period commencing on December 31, 2017 and ending on December 31, 2022.
The following graph compares the cumulative total stockholder return on our common stock with the cumulative total return of the S&P 500 Index and the S&P 500 Software & Services Index during the five-year period commencing on December 31, 2018 and ending on December 31, 2023.
On August 15, 2022, we announced that our Board of Directors increased the availability under the existing stock repurchase plan to $1.1 billion and extended the expiration date to August 15, 2024. (2) Consists of shares withheld to satisfy tax withholding obligations for certain employees upon the vesting of restricted stock. Item 6. R eserved 33
On August 15, 2022, we announced that our Board of Directors increased the availability under the existing stock repurchase plan to $1.1 billion and extended the expiration date to August 15, 2024. (2) Consists of shares withheld to satisfy tax withholding obligations for certain employees upon the vesting of equity incentive awards.
Item 5. Market for Registrants Common Equi ty, Related Stockholder Matters and Issuer Purchases of Equity Securities Our common stock is traded on the NYSE under the symbol “PAYC.” As of February 7, 2023, there were approximately 2,798 holders of record of our common stock.
Item 5. Market for Registrant’s Common Equi ty, Related Stockholder Matters and Issuer Purchases of Equity Securities Our common stock is traded on the NYSE under the symbol “PAYC.” As of February 8, 2024, there were approximately 3,209 holders of record of our common stock.
Performance Graph Notwithstanding any statement to the contrary in any of our filings with the SEC, the following performance graph shall not be deemed “filed” with the SEC for purposes of Section 18 of the Exchange Act or “soliciting material” under the Exchange Act and shall not be incorporated by reference into any such filings irrespective of any general incorporation language contained in such filing.
The Board of Directors retains the power to modify, suspend, or cancel the dividend policy in any manner and at any time that it may deem necessary or appropriate. 38 Performance Graph Notwithstanding any statement to the contrary in any of our filings with the SEC, the following performance graph shall not be deemed “filed” with the SEC for purposes of Section 18 of the Exchange Act or “soliciting material” under the Exchange Act and shall not be incorporated by reference into any such filings irrespective of any general incorporation language contained in such filing.
This number is based on the actual number of holders registered at such date and does not include holders whose shares are held in “street name” by brokers and other nominees. Dividends We have not paid any cash dividends on our common stock as of the filing of this Form 10-K.
This number is based on the actual number of holders registered at such date and does not include holders whose shares are held in “street name” by brokers and other nominees. Dividends In May 2023, our Board of Directors adopted a dividend policy under which we intend to pay quarterly cash dividends on our common stock.
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The declaration, amount and payment of any future dividends on shares of common stock will be at the sole discretion of our board of directors and we may reduce or discontinue entirely the payment of such dividends at any time.
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The following table summarizes dividend activity during 2023.
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Our board of directors may take into account general and economic conditions, our financial condition and operating results, our available cash and current and anticipated cash needs, capital requirements, contractual, legal, tax and regulatory restrictions and implications of the payment of dividends by us to our stockholders or by our subsidiaries to us, and such other factors as our board of directors may deem relevant.
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Declaration Date Record Date Payment Date Per Share Dividend Total Cash Dividends Paid (in thousands) (1) October 30, 2023 November 27, 2023 December 11, 2023 $ 0.375 $ 21,471 July 31, 2023 August 28, 2023 September 11, 2023 $ 0.375 $ 21,636 May 15, 2023 May 30, 2023 June 12, 2023 $ 0.375 $ 21,731 (1) All unvested equity incentive awards currently outstanding are entitled to receive dividends or dividend equivalents, provided that such dividends or dividend equivalents are withheld by the Company and distributed to the applicable holder upon vesting of the award.
Removed
We have selected the S&P 500 Software & Services Index as our published industry or line-of-business index, replacing the S&P 1500 Application Software Index used in prior years, as we believe the S&P 500 Software & Services Index represents a more appropriate peer group.
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Dividends declared, as reported in the consolidated statements of stockholders’ equity, includes dividends and dividend equivalents payable to holders of unvested equity incentive awards and, as a result, exceeds the amount of total cash dividends paid presented in this column.
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On February 5, 2024, our Board of Directors declared a quarterly cash dividend of $0.375 per share of common stock payable on March 18, 2024 to stockholders of record at the close of business on March 4, 2024.
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The declaration, timing and amount of each quarterly cash dividend are subject to the discretion and approval of the Board of Directors, including a determination that the dividend policy and the declaration of dividends thereunder are in the best interests of our stockholders and are in compliance with applicable law.
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(3) Includes 2,027 shares withheld to satisfy tax withholding for certain employees upon the vesting of equity incentive awards. (4) Includes 5,174 shares withheld to satisfy tax withholding for certain employees upon the vesting of equity incentive awards. Item 6. R eserved 40

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

97 edited+28 added−19 removed62 unchanged
Biggest changeManagement’s Discussion and Analysis of Financial Condition and Results of Operations” in the Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on February 17, 2022, for a presentation of the 2020 amounts: Year Ended December 31, 2022 2021 Net income to adjusted EBITDA: Net income $ 281,389 $ 195,960 Interest expense 2,536 — Provision for income taxes 108,189 60,002 Depreciation and amortization 92,699 67,222 EBITDA 484,813 323,184 Non-cash stock-based compensation expense 94,898 97,506 Change in fair value of interest rate swap — (1,403 ) Adjusted EBITDA $ 579,711 $ 419,287 Year Ended December 31, 2022 2021 Net income to non-GAAP net income: Net income $ 281,389 $ 195,960 Non-cash stock-based compensation expense 94,898 97,506 Change in fair value of interest rate swap — (1,403 ) Income tax effect on non-GAAP adjustments (19,053 ) (31,652 ) Non-GAAP net income $ 357,234 $ 260,411 Weighted average shares outstanding: Basic 57,928 57,885 Diluted 58,175 58,191 Earnings per share, basic $ 4.86 $ 3.39 Earnings per share, diluted $ 4.84 $ 3.37 Non-GAAP net income per share, basic $ 6.17 $ 4.50 Non-GAAP net income per share, diluted $ 6.14 $ 4.48 Year Ended December 31, 2022 2021 Earnings per share to non-GAAP net income per share, basic: Earnings per share, basic $ 4.86 $ 3.39 Non-cash stock-based compensation expense 1.64 1.68 Change in fair value of interest rate swap — (0.02 ) Income tax effect on non-GAAP adjustments (0.33 ) (0.55 ) Non-GAAP net income per share, basic $ 6.17 $ 4.50 Year Ended December 31, 2022 2021 Earnings per share to non-GAAP net income per share, diluted: Earnings per share, diluted $ 4.84 $ 3.37 Non-cash stock-based compensation expense 1.63 1.68 Change in fair value of interest rate swap — (0.02 ) Income tax effect on non-GAAP adjustments (0.33 ) (0.55 ) Non-GAAP net income per share, diluted $ 6.14 $ 4.48 45
Biggest changeYear Ended December 31, 2023 2022 Net income to adjusted EBITDA: Net income $ 340,788 $ 281,389 Interest expense 1,927 2,536 Provision for income taxes 131,611 108,189 Depreciation and amortization 113,948 92,699 EBITDA 588,274 484,813 Non-cash stock-based compensation expense 129,806 94,898 Loss on extinguishment of debt 1,222 — Adjusted EBITDA $ 719,302 $ 579,711 Year Ended December 31, 2023 2022 Net income to non-GAAP net income: Net income $ 340,788 $ 281,389 Non-cash stock-based compensation expense 129,806 94,898 Loss on extinguishment of debt 1,222 — Income tax effect on non-GAAP adjustments (22,331 ) (19,053 ) Non-GAAP net income $ 449,485 $ 357,234 Weighted average shares outstanding: Basic 57,707 57,928 Diluted 57,974 58,175 Earnings per share, basic $ 5.91 $ 4.86 Earnings per share, diluted $ 5.88 $ 4.84 Non-GAAP net income per share, basic $ 7.79 $ 6.17 Non-GAAP net income per share, diluted $ 7.75 $ 6.14 Year Ended December 31, 2023 2022 Earnings per share to non-GAAP net income per share, basic: Earnings per share, basic $ 5.91 $ 4.86 Non-cash stock-based compensation expense 2.25 1.64 Loss on extinguishment of debt 0.02 — Income tax effect on non-GAAP adjustments (0.39 ) (0.33 ) Non-GAAP net income per share, basic $ 7.79 $ 6.17 Year Ended December 31, 2023 2022 Earnings per share to non-GAAP net income per share, diluted: Earnings per share, diluted $ 5.88 $ 4.84 Non-cash stock-based compensation expense 2.24 1.63 Loss on extinguishment of debt 0.02 — Income tax effect on non-GAAP adjustments (0.39 ) (0.33 ) Non-GAAP net income per share, diluted $ 7.75 $ 6.14 53
We typically invest funds held for clients in money market funds, demand deposit accounts, commercial paper and certificates of deposit until they are paid to the applicable tax or regulatory agencies or to client employees.
We typically invest funds held for clients in money market funds, demand deposit accounts, certificates of deposit and commercial paper until they are paid to the applicable tax or regulatory agencies or to client employees.
All amounts presented in tables, other than per share amounts, are in thousands unless otherwise noted. Overview We are a leading provider of a comprehensive, cloud-based human capital management (“HCM”) solution delivered as Software-as-a-Service. We provide functionality and data analytics that businesses need to manage the complete employment lifecycle, from recruitment to retirement.
All amounts presented in tables, other than per share amounts, are in thousands unless otherwise noted. Overview We are a leading provider of a comprehensive, cloud-based human capital management solution delivered as Software-as-a-Service. We provide functionality and data analytics that businesses need to manage the complete employment lifecycle, from recruitment to retirement.
In the qualitative assessment, we consider the macroeconomic conditions, including any deterioration of general economic conditions, industry and market conditions, including any deterioration in the environment where the reporting unit operates, changes in the products/services and regulator and political developments; cost of doing business; overall financial performance; other relevant reporting unit specific facts, such as changes in 43 management or key personnel or pending litigation.
In the qualitative assessment, we consider the macroeconomic conditions, including any deterioration of general economic conditions, industry and market conditions, including any deterioration in the environment where the reporting unit operates, changes in the products/services and regulator and political developments; cost of doing business; overall financial performance; other relevant reporting unit specific facts, such as changes in management or key personnel or pending litigation.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the audited and unaudited consolidated financial statements (prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) and related notes included elsewhere in this Annual Report on Form 10-K (this “Form 10-K”).
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the audited consolidated financial statements (prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) and related notes included elsewhere in this Annual Report on Form 10-K (this “Form 10-K”).
Goodwill and Other Intangible Assets Goodwill is not amortized, but we are required to test the carrying value of goodwill for impairment at least annually, or earlier if, at the reporting unit level, an indicator of impairment arises. Our business is largely homogeneous and, as a result, goodwill is associated with one reporting unit.
Goodwill and Other Intangible Assets Goodwill is not amortized, but we are required to test the carrying value of goodwill for impairment at least annually, or earlier if, at the reporting unit level, an indicator of impairment arises. Our business is largely homogeneous and, as a result, goodwill is 51 associated with one reporting unit.
The amount of depreciation and amortization of property and equipment allocated to cost of revenues is determined based upon an estimate of assets used to support our operations. 36 Administrative Expenses Administrative expenses consist of sales and marketing, research and development, general and administrative and depreciation and amortization.
The amount of depreciation and amortization of property and equipment allocated to cost of revenues is determined based upon an estimate of assets used to support our operations. Administrative Expenses Administrative expenses consist of sales and marketing expenses, research and development expenses, general and administrative expenses and depreciation and amortization expenses.
Market-Based Restricted Stock Awards and Performance-Based Restricted Stock Units We measure non-cash stock-based compensation expense based on the fair value of the award on the date of grant. We determine the fair value of stock awards and units issued by using a Monte Carlo simulation model.
Market-Based Restricted Stock Awards and Performance-Based Restricted Stock Units We measure non-cash stock-based compensation expense based on the fair value of the award on the date of grant. We determine the fair value of stock and unit awards issued by using a Monte Carlo simulation model.
While we generally do not track our revenues on an application-by-application basis (because applications are often sold in various groupings and configurations for a single price), we estimate that, if the ACA is not modified or repealed, revenues from our Enhanced ACA application and ACA forms filings business will represent approximately 2% of total projected revenues for the year ending December 31, 2023.
While we generally do not track our revenues on an application-by-application basis (because applications are often sold in various groupings and configurations for a single price), we estimate that, if the ACA is not modified or repealed, revenues from our Enhanced ACA application and ACA forms filings business will represent approximately 2% of total projected revenues for the year ending December 31, 2024.
Research and development expenses consist primarily of employee-related expenses (including non-cash stock-based compensation expenses) for our development staff, net of capitalized software costs for internally developed software.
Research and development expenses consist primarily of employee-related expenses (including 44 non-cash stock-based compensation expenses) for our development staff, net of capitalized software costs for internally developed software.
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 Form 10-K, when viewed in combination with our results prepared in accordance with U.S.
In addition, adjusted EBITDA is a measure that provides useful information to management about the amount of cash available for reinvestment in our business, paying dividends, repurchasing common stock and other purposes. Management believes that the non-GAAP measures presented in this Form 10-K, when viewed in combination with our results prepared in accordance with U.S.
Accordingly, these are the policies we believe are the most critical to aid in fully understanding and evaluating our consolidated financial condition and results of operations. 42 Revenue Recognition Revenues are recognized when control of the promised goods or services is transferred to our clients in an amount that reflects the consideration we expect to be entitled to for those goods or services.
Accordingly, these are the policies we believe are the most critical to aid in fully understanding and evaluating our consolidated financial condition and results of operations. 50 Revenue Recognition Revenues are recognized when control of the promised goods or services is transferred to our clients in an amount that reflects the consideration we expect to be entitled to for those goods or services.
Based on our assessment, there was no impairment recorded as of June 30, 2022. For the years ended December 31, 2022, 2021 and 2020, there were no indicators of impairment. Intangible assets with definite lives are amortized on a straight-line basis over their estimated useful lives.
Based on our assessment, there was no impairment recorded as of June 30, 2023. For the years ended December 31, 2023, 2022 and 2021, there were no indicators of impairment. Intangible assets with definite lives are amortized on a straight-line basis over their estimated useful lives.
The increase in implementation and other revenues for the year ended December 31, 2022 from the year ended December 31, 2021 was primarily the result of the increased non-refundable upfront conversion fees collected from the addition of new clients. These fees are deferred and recognized ratably over the ten-year estimated life of our clients.
The increase in implementation and other revenues for the year ended December 31, 2023 from the year ended December 31, 2022 was primarily the result of the increased non-refundable upfront conversion fees collected from the addition of new clients. These fees are deferred and recognized ratably over the ten-year estimated life of our clients.
Substantially all of our revenues are comprised of revenue from contracts with clients. Sales and other applicable taxes are excluded from revenues. Recurring revenues are derived primarily from our talent acquisition, time and labor management, payroll, talent management and HR management applications as well as fees charged for form filings and delivery of client payroll checks and reports.
Substantially all of our revenues are revenues from contracts with clients. Sales and other applicable taxes are excluded from revenues. Recurring revenues are derived primarily from our talent acquisition, time and labor management, payroll, talent management and HR management applications as well as fees charged for form filings and delivery of client payroll checks and reports.
Adjusted EBITDA and non-GAAP net income may not be comparable to similarly titled measures of other companies and other companies may not calculate such measures in the same manner as we do. 44 The following tables reconcile net income to adjusted EBITDA, net income to non-GAAP net income and earnings per share to non-GAAP net income per share on a basic and diluted basis.
Adjusted EBITDA and non-GAAP net income may not be comparable to similarly titled measures of other companies and other companies may not calculate such measures in the same manner as we do. 52 The following tables reconcile net income to adjusted EBITDA, net income to non-GAAP net income and earnings per share to non-GAAP net income per share on a basic and diluted basis.
None of our clients constituted more than one-half of one percent of our revenues for the year ended December 31, 2022. Our revenues are primarily generated through our sales force that solicits new clients and our client relations representatives, (“CRRs”) who sell new applications to existing clients.
None of our clients constituted more than one-half of one percent of our revenues for the year ended December 31, 2023. Our revenues are primarily generated through our sales force that solicits new clients and our client relations representatives (“CRRs”) who sell new applications to existing clients.
Implementation and Other Revenues Implementation and other revenues are comprised of implementation fees for the deployment of our solution and other revenues from sales of time clocks as part of our time and attendance services. Non-refundable implementation fees are charged to new clients at inception and upon the addition of certain incremental applications for existing clients.
Implementation and Other Revenues Implementation and other revenues consist of implementation fees for the deployment of our solution and other revenues from sales of time clocks as part of our time and attendance services. Non-refundable implementation fees are charged to new clients at inception and upon the addition of certain incremental applications for existing clients.
Additionally, rising interest rates and a higher average funds held for clients balance during year ended December 31, 2022 as compared to the year ended December 31, 2021, resulted in increased interest earned on funds held for clients, which had a positive impact on recurring revenue.
Additionally, rising interest rates and a higher average funds held for clients balance during year ended December 31, 2023 as compared to the year ended December 31, 2022, resulted in increased interest earned on funds held for clients, which had a positive impact on recurring revenue.
We believe our existing cash and cash equivalents, cash generated from operations and available sources of liquidity will be sufficient to maintain operations, make necessary capital expenditures and opportunistically repurchase shares for at least the next 12 months.
We believe our existing cash and cash equivalents, cash generated from operations and available sources of liquidity will be sufficient to maintain operations, make necessary capital expenditures, pay dividends and opportunistically repurchase shares for at least the next 12 months.
Because we charge our clients on a per-employee basis for certain services we provide, the drivers of revenue for the year ended December 31, 2022 described above were impacted by the headcount fluctuations within our client base.
Because we charge our clients on a per-employee basis for certain services we provide, the drivers of revenue for the year ended December 31, 2023 described above were impacted by the headcount fluctuations within our client base.
All loans under the July 2022 Credit Agreement will mature on July 29, 2027 (the “Scheduled Maturity Date”).
All loans under the Credit Agreement will mature on July 29, 2027 (the “Scheduled Maturity Date”).
The borrowings under the July 2022 Credit Agreement will bear interest at a rate per annum equal to (i) the Alternate Base Rate (“ABR”) plus an applicable margin (“ABR Loans”) or (ii) (x) the term Secured Overnight Financing Rate (“SOFR”) plus 0.10% (the “Adjusted Term SOFR Rate”) or (y) the daily SOFR plus 0.10%, in each case plus an applicable margin (“SOFR Rate Loans”).
The borrowings under the Credit Agreement bear interest at a rate per annum equal to (i) the Alternate Base Rate (“ABR”) plus an applicable margin (“ABR Loans”) or (ii) (x) the term Secured Overnight Financing Rate (“SOFR”) plus 0.10% (the “Adjusted Term SOFR Rate”) or (y) the daily SOFR plus 0.10%, in each case plus an applicable margin (“SOFR Rate Loans”).
We intend to 34 obtain new clients by (i) continuing to leverage our sales force productivity within markets where we currently have existing sales offices, (ii) expanding our presence in metropolitan areas where we currently have an existing sales office through adding sales teams or offices, thereby increasing the number of sales professionals within such markets, and (iii) opening sales offices in new metropolitan areas.
We intend to obtain new clients by (i) continuing to leverage our sales force productivity within markets where we currently have existing sales offices, (ii) expanding our presence in markets where we currently have an existing sales office through adding sales teams or offices, thereby increasing the number of sales professionals within such markets, and (iii) opening sales offices in new markets.
Implementation and other revenues consist of nonrefundable upfront conversion fees which are charged to new clients to offset the expense of new client set-up as well as revenues from the sale of time clocks as part of our employee time and attendance services. Although these revenues are related to our recurring revenues, they represent distinct performance obligations.
Implementation and other revenues consist of nonrefundable upfront conversion fees which are charged to new clients to offset the expense of new client set-up as well as revenues from the sale of time clocks as part of our time and attendance application. Although these revenues are related to our recurring revenues, they represent distinct performance obligations.
Each outside sales team consists of a sales manager and approximately six to eight sales professionals. Certain larger metropolitan areas can support more than one sales team. We believe the number of sales teams is an indicator of potential revenues for future periods. • Annual Revenue Retention Rate .
Each outside sales team typically consists of a sales manager and approximately eight sales professionals. Certain larger metropolitan areas can support more than one sales team. We believe the number of sales teams is an indicator of potential revenues for future periods. • Annual Revenue Retention Rate .
If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized for the amount by which the carrying amount of the asset exceeds the estimated fair value of the asset. We have determined that there is no impairment of long-lived assets for the years ended December 31, 2022, 2021 and 2020.
If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized for the amount by which the carrying amount of the asset exceeds the estimated fair value of the asset. We have determined that there was no impairment of long-lived assets for the years ended December 31, 2023, 2022 and 2021.
Other Income (Expense), net Other income (expense), net includes interest earned on our own funds, any gain or loss on the sale or disposal of fixed assets, costs associated with the early repayment of debt, and the realized gain which resulted from the settlement of our interest rate swap agreement.
Other Income (Expense), net Other income (expense), net includes interest earned on our own funds, any gain or loss on the sale or disposal of fixed assets, costs associated with the early repayment of debt, loss on the extinguishment of debt, and the realized gain that resulted from the settlement of our interest rate swap agreement.
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 and (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.
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), the change in fair value of our interest rate swap (if any) and any loss on the extinguishment of debt and (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), the change in fair value of our interest rate swap (if any) and any loss on the extinguishment of debt, all of which are adjusted for the effect of income taxes.
We are required to pay a quarterly commitment fee on the daily amount of the undrawn portion of the revolving commitments under the July 2022 Revolving Credit Facility and a quarterly ticking fee on the daily amount of the undrawn portion of the July 2022 Term Loan Facility, in each case at a rate per annum of (i) 0.20% if the Company’s consolidated leverage ratio is less than 1.0 to 1.0; (ii) 0.225% if the Company’s consolidated leverage ratio is greater than or equal to 1.0 to 1.0 but less than 2.0 to 1.0; (iii) 0.25% if the Company’s consolidated leverage ratio is greater than or equal to 2.0 to 1.0 but less than 3.0 to 1.0; or (iv) 0.275% if the Company’s consolidated leverage ratio is greater than or equal to 3.0 to 1.0.
We are required to pay a quarterly commitment fee on the daily amount of the undrawn portion of the revolving commitments under the Revolving Credit Facility and, prior to its termination, a quarterly ticking fee on the daily amount of the undrawn portion of the Term Loan Facility, in each case at a rate per annum of (i) 0.20% if the Company’s consolidated leverage ratio is less than 1.0 to 1.0; (ii) 0.225% if the Company’s consolidated leverage ratio is greater than or equal to 1.0 to 1.0 but less than 2.0 to 1.0; (iii) 0.25% if the Company’s consolidated leverage ratio is greater than or equal to 2.0 to 1.0 but less than 3.0 to 1.0; or (iv) 0.275% if the Company’s consolidated leverage ratio is greater than or equal to 3.0 to 1.0.
Expenditures for software developed or obtained for internal use are capitalized and amortized over a three-year period on a straight-line basis. The nature of the development projects underway during a particular period directly impacts the timing and extent of these capitalized expenditures and can affect the amount of research and development expenses in such period.
Expenditures for software developed or obtained for internal use are capitalized and amortized over a three-year period on a straight-line basis. The nature of the development projects underway during a particular period, such as our international expansion, directly impacts the timing and extent of these capitalized expenditures and can affect the amount of research and development expenses in such period.
Compared to the year ended December 31, 2021, our operating cash flows for the year ended December 31, 2022 were positively impacted by the growth of our business.
Compared to the year ended December 31, 2022, our operating cash flows for the year ended December 31, 2023 were positively impacted by the growth of our business.
The actual timing, number and value of shares repurchased depends on a number of factors, including the market price of our common stock, general market and economic conditions, the shares withheld for taxes associated with the vesting of restricted stock and other corporate considerations. The current stock repurchase plan will expire on August 15, 2024.
The actual timing, number and value of shares repurchased depends on a number of factors, including the market price of our common stock, general market and economic conditions, shares withheld for taxes associated with the vesting of equity incentive awards and other corporate considerations. The current stock repurchase plan will expire on August 15, 2024.
We track the number of our clients based on parent company grouping to provide an alternate measure of the size of our business and clients. 35 • Sales Teams . We monitor our sales professionals by the number of sales teams at period end. CRRs and inside sales representatives are counted as one sales team.
We track the number of our clients based on parent company grouping to provide an alternate measure of the size of our business and clients. • Sales Teams . We monitor our sales professionals by the number of sales teams at period end. CRRs and emerging markets representatives are counted as one sales team.
Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on February 17, 2022 , for a discussion of results for the year ended December 31, 2020, including a discussion of the changes in our results of operations for the year ended December 31, 2021 compared to the year ended December 31, 2020.
Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on February 16, 2023 , for a discussion of results for the year ended December 31, 2021, including a discussion of the changes in our results of operations for the year ended December 31, 2022 compared to the year ended December 31, 2021.
We consider the total price charged to a client in a given period to be indicative of the standalone selling price, as the total amount charged is within a reasonable range of prices typically charged for our goods and services for comparable classes of client groups.
We consider the total price charged to a client in a given period to be indicative of the standalone selling price, as the total amount charged is within a reasonable range of prices typically charged for our goods and services for comparable classes of client groups, which we periodically assess for price adjustments.
In May 2016, our Board of Directors authorized a stock repurchase plan allowing for the repurchase of shares of our common stock in open market transactions at prevailing market prices, in privately negotiated transactions or by other means in accordance with federal securities laws, including Rule 10b5-1 programs.
Stock Repurchase Plan and Withholding Shares to Cover Taxes. In May 2016, our Board of Directors authorized a stock repurchase plan allowing for the repurchase of shares of our common stock in open market transactions at prevailing market prices, in privately negotiated transactions or by other means in accordance with federal securities laws, including Rule 10b5-1 programs.
Provision for Income Taxes The provision for income taxes is based on a current estimate of the annual effective income tax rate adjusted to reflect the impact of discrete items. Our effective income tax rate was 28% and 23% for the years ended December 31, 2022 and 2021, respectively.
Provision for Income Taxes The provision for income taxes is based on a current estimate of the annual effective income tax rate adjusted to reflect the impact of discrete items. Our effective income tax rate was 28% for the years ended December 31, 2023 and 2022.
In addition, based on our strong profitability and continued growth, we expect to meet our longer-term liquidity needs with cash flows from operations and, as needed, financing arrangements. Interest Rate Swap Agreement.
In addition, based on our strong profitability and continued growth, we expect to meet our longer-term liquidity needs with cash flows from operations and, as needed, financing arrangements. Credit Agreement.
Implementation and other revenues comprised approximately 1.7% and 1.8% of our total revenues for the years ended December 31, 2022 and 2021, respectively. Cost of Revenues Cost of revenues consists of expenses related to hosting and supporting our applications, hardware costs, systems support and technology and depreciation and amortization.
Implementation and other revenues comprised approximately 1.7% of our total revenues for each of the years ended December 31, 2023 and 2022. Cost of Revenues Cost of revenues consists of expenses related to hosting and supporting our applications, hardware costs, systems support and technology and depreciation and amortization.
The July 2022 Credit Agreement provides for the July 2022 Revolving Credit Facility in the aggregate principal amount of up to $650.0 million, and the ability to request an incremental facility of up to an additional $500.0 million, subject to obtaining additional lender commitments and certain approvals and satisfying certain other conditions.
The Credit Agreement initially provided for the Revolving Credit Facility in the aggregate principal amount of up to $650.0 million, and the ability to request an incremental facility of up to an additional $500.0 million, subject to obtaining additional lender commitments and certain approvals and satisfying certain other conditions.
These revenues are derived from (i) fixed amounts charged per billing period plus a fee per employee or transaction processed or (ii) fixed amounts charged per billing period. We do not require clients to enter into long-term contractual commitments with us.
We generate revenues from (i) fixed amounts charged per billing period plus a fee per employee or transaction processed and (ii) fixed amounts charged per billing period. We do not require clients to enter into long-term contractual commitments with us.
Recurring revenues are recognized in the period services are rendered. Recurring revenues include revenues relating to the annual processing of payroll tax filing forms, such as Form W-2 and Form 1099, and revenues from processing unscheduled payroll runs (such as bonuses) for our clients.
Recurring revenues are recognized in the period services are rendered. Recurring revenues include revenues relating to the annual processing of payroll tax filing forms and ACA form filing requirements and revenues from processing unscheduled payroll runs (such as bonuses) for our clients.
In addition, our tax forms filing business in the first quarter of 2022 contributed to the increase in total revenues for the year ended December 31, 2022 as compared to the year ended December 31, 2021.
The performance of our tax forms filing business in the first quarter of 2023 contributed to the increase in total revenues for the year ended December 31, 2023, as compared to the year ended December 31, 2022.
For each of the years ended December 31, 2022, 2021 and 2020, our gross margin was approximately 85%. Although our gross margin may fluctuate from quarter to quarter due to seasonality and hiring trends, we expect that our gross margin will remain relatively consistent in future periods. Key Metrics In addition to the U.S.
For each of the years ended December 31, 2023, 2022 and 2021, our gross margins were approximately 84%, 85% and 85%, respectively. Although our gross margin may fluctuate from quarter to quarter due to seasonality and hiring trends, we expect that our gross margin will remain relatively consistent in future periods. 42 Key Metrics In addition to the U.S.
Recurring Revenues Recurring revenues include fees for our talent acquisition, time and labor management, payroll, talent management and HR management applications as well as fees charged for form filings and delivery of client payroll checks and reports.
Recurring Revenues Recurring revenues are derived primarily from our talent acquisition, time and labor management, payroll, talent management and HR management applications as well as fees charged for form filings and delivery of client payroll checks and reports.
As of December 31, 2022, there was $1.1 billion available for repurchases under our stock repurchase plan. Our stock repurchase plan may be suspended or discontinued at any time.
As of December 31, 2023, there was $799.1 million available for repurchases under our stock repurchase plan. Our stock repurchase plan may be suspended or discontinued at any time.
On July 29, 2022 (the “July 2022 Facility Closing Date”), we entered into a new credit agreement (the “July 2022 Credit Agreement”) with JPMorgan Chase Bank, N.A., as a lender, swingline lender and issuing bank, the lenders from time to time party thereto (collectively with JPMorgan Chase Bank, N.A., the “July 2022 Lenders”), and JPMorgan Chase Bank, N.A., as the administrative agent.
On July 29, 2022 , we entered into a new credit agreement (the “Credit Agreement”) with JPMorgan Chase Bank, N.A., as a lender, swingline lender and issuing bank, the lenders from time to time party thereto (collectively with JPMorgan Chase Bank, N.A., the “Lenders”), and JPMorgan Chase Bank, N.A., as the administrative agent.
Talent acquisition includes our Applicant Tracking, Candidate Tracker, Enhanced Background Checks, Onboarding, E-Verify and Tax Credit Services applications. Time and labor management includes Time and Attendance, Scheduling/Schedule exchange, Time-Off Requests, Labor Allocation, Labor Management Reports/Push Reporting, Geofencing/Geotracking and Microfence tools and applications.
Talent acquisition includes our Applicant Tracking, Candidate Tracker, Enhanced Background Checks, Onboarding, E-Verify and Tax Credits applications. Time and labor management includes Time and Attendance, Scheduling, Time-Off Requests with GONE, Labor Allocation, Labor Management Reports/Push Reporting, Geofencing/Geotracking and Microfence tools and applications.
Payroll includes Beti, Payroll and Tax Management, Vault Card, Paycom Pay, Expense Management, Mileage Tracker/FAVR, Garnishment Administration and GL Concierge applications. Talent management includes our Employee Self-Service, Compensation Budgeting, Performance Management, Position Management, My Analytics and Paycom Learning and Content Subscriptions applications.
Payroll includes Beti, Payroll and Tax Management, Vault, Everyday, Paycom Pay, Client Action Center, Expense Management, Mileage Tracker/FAVR, Garnishment Administration and GL Concierge applications. Talent management includes our Employee Self-Service, Compensation Budgeting, Performance Management, Position Management, My Analytics and Paycom Learning applications.
Our payment of the taxes on behalf of those employees resulted in an aggregate cash expenditure of $5.2 million and, as such, we generally subtract the amounts attributable to such withheld shares from the aggregate amount available for future purchases under our stock repurchase plan.
Our payment of the taxes on behalf of those employees resulted in an aggregate cash expenditure of $13.9 million and, as such, we generally subtract the amounts attributable to such withheld shares from the aggregate amount available for future purchases under our stock repurchase plan. Dividends on Common Stock. For a discussion of our dividends, see “Item 5.
Research and development During the year ended December 31, 2022, research and development expenses increased $29.9 million from the prior year primarily due to an increase in employee-related expenses.
Research and development During the year ended December 31, 2023, research and development expenses increased $50.6 million from the prior year primarily due to an increase in employee-related expenses.
We believe our ability to continue to develop new applications and to improve existing applications will enable us to increase revenues in the future, and the number of our new applications adopted by our clients has been a significant factor in our revenue growth.
We believe our ability to continue to develop new applications and to improve existing applications will enable us to increase revenues in the future, and the number of our new applications adopted by our clients has been a significant factor in our revenue growth. We plan to open additional sales offices in the future to further expand our market presence.
Expenses Cost of Revenues During the year ended December 31, 2022, operating expenses increased from the prior year by $39.3 million primarily due to a $33.2 million increase in employee-related expenses attributable to growth in the number of operating personnel, a $3.6 million increase in shipping and supplies fees, and a $2.2 million increase in automated clearing house fees in connection with the increase in revenues.
Expenses Cost of Revenues During the year ended December 31, 2023, operating expenses increased from the prior year by $53.9 million primarily due to a $44.2 million increase in employee-related expenses attributable to growth in the number of operating personnel, a $5.0 million increase in shipping and supplies fees, and a $2.5 million increase in automated clearing house fees in connection with the increase in revenues.
The preparation of these consolidated financial statements requires us to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and expenses, and related disclosures. Estimates made in accordance with U.S.
Critical Accounting Policies and Estimates Our consolidated financial statements and accompanying notes have been prepared in accordance with U.S. GAAP. The preparation of these consolidated financial statements requires us to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and expenses, and related disclosures. Estimates made in accordance with U.S.
Our target client size range is 50 to 10,000 employees. While we continue to serve a diversified client base ranging in size from one employee to many thousands of employees, the average size of our clients has grown significantly as we have organically grown our operations, increased the number of applications we offer and gained traction with larger companies.
While we continue to serve a diversified client base ranging in size from one employee to many thousands of employees, the average size of our clients has grown significantly as we have organically grown our operations and increased the number of applications we offer.
Interest Expense The increase in interest expense for the year ended December 31, 2022 was due to the timing and progress of construction of the expansion of our corporate headquarters and our expanded operations facility, which resulted in a lower capitalization rate of interest in 2022.
Interest Expense The decrease in interest expense for the year ended December 31, 2023 was due to the timing and progress of construction of the expansion of our corporate headquarters, which resulted in a higher capitalization rate of interest in 2023.
Financing Activities Cash flows provided by financing activities for the year ended December 31, 2022 increased from the prior year period primarily due to the impact of a $128.1 million change related to the client funds obligation, which is due to the timing of receipts from our clients and payments made to our clients’ employees and applicable taxing authorities on their behalf, a $60.4 million decrease in withholding taxes paid related to net share settlements, and a $29.0 million increase in proceeds from the issuance of debt.
Financing Activities Cash used in financing activities for the year ended December 31, 2023 increased from the prior year primarily due to the impact of a $240.8 million change related to the client funds obligation, which is due to the timing of receipts from our clients and payments made to our clients’ employees and applicable taxing authorities on their behalf, a $192.0 million increase in common stock repurchases, the payment of $64.8 million in cash dividends, a $29.0 million decrease in proceeds from the issuance of debt, and a $8.8 million increase in withholding taxes paid related to net share settlements.
GAAP and non-GAAP metrics discussed elsewhere in this Form 10-K, we also monitor the following metrics to evaluate our business, measure our performance and identify trends affecting our business: Year Ended December 31, 2022 2021 2020 Key performance indicators: Clients 36,561 33,875 30,994 Clients (based on parent company grouping) 19,081 17,703 16,063 Sales teams 55 51 50 Annual revenue retention rate 93 % 94 % 93 % • Clients.
GAAP and non-GAAP metrics discussed elsewhere in this Form 10-K, we also monitor the following metrics to evaluate our business, measure our performance and identify trends affecting our business: Year Ended December 31, 2023 2022 2021 Key performance indicators: Clients 36,820 36,561 33,875 Clients (based on parent company grouping) 19,481 19,081 17,703 Sales teams 55 55 51 Annual revenue retention rate (1) 90 % 91 % 94 % (1) As described below, during 2023, we modified the method by which we calculate annual revenue retention rate.
Interest Expense Interest expense includes interest on our debt and settlements related to an interest rate swap prior to the termination of the interest rate swap agreement on August 24, 2022. We capitalize interest incurred for indebtedness related to construction in progress.
Interest Expense Interest expense includes interest on our long-term debt and settlements related to an interest rate swap prior to the termination of the interest rate swap agreement on August 24, 2022. Prior to the repayment of our long-term debt in November 2023, we capitalized interest costs incurred for indebtedness related to construction in progress. See “Note 6.
We expect interest earned on funds held for clients will increase as we introduce new applications, expand our client base and renew and expand relationships with existing clients. The amount of interest we earn from the investment of client funds is also impacted by changes in interest rates.
As we introduce new applications, expand our client base and renew and expand relationships with existing clients, we expect our average funds held for clients balance and, accordingly, interest earned on funds held for clients, will increase; however, the amount of interest we earn can be positively or negatively impacted by changes in interest rates.
The increase in cash flows provided by financing activities was partially offset by a $94.7 million increase in common stock repurchases, a $27.5 million increase payments on long-term debt, and a $6.4 million increase in payment of debt issuance costs. Contractual Obligations Our principal commitments primarily consist of long-term debt, leases for office space and the naming rights agreement.
The increase in cash used in financing activities was partially offset by a $0.3 million decrease in payments on long-term debt and a $5.8 million decrease in payment of debt issuance costs. Contractual Obligations Our principal commitments primarily consist of leases for office space and the naming rights agreement.
Investing Activities Cash flows used in investing activities for the year ended December 31, 2022 decreased from the prior year period due to a $130.1 million decrease in purchases of investments from funds held for clients, a $114.9 million increase in proceeds from investments from funds held for clients, and a $1.4 million decrease in purchases of intangible assets, which were partially offset by a $12.0 million increase in purchases of property and equipment.
Investing Activities Cash used in investing activities for the year ended December 31, 2023 increased from the prior year due to a $357.2 million decrease in proceeds from investments from funds held for clients, a $59.9 million increase in purchases of property and equipment, and a $0.1 million increase in purchases of intangible assets, which were partially offset by a $243.7 million decrease in purchases of investments from funds held for clients and a $0.1 million increase in proceeds from the sale of property and equipment.
Unless we state otherwise or the context otherwise requires, references to clients throughout this Form 10-K refer to this metric. • Clients (based on parent company grouping).
We track the number of our clients to provide an accurate gauge of the size of our business. Unless we state otherwise or the context otherwise requires, references to clients throughout this Form 10-K refer to this metric. • Clients (based on parent company grouping).
Non-Cash Stock-Based Compensation Expense The following table presents the non-cash stock-based compensation expense that is included within the specified line items in our consolidated statements of comprehensive income: Year Ended December 31, 2022 2021 % Change Non-cash stock-based compensation expense Operating expenses $ 4,671 $ 4,570 2% Sales and marketing 18,659 13,801 35% Research and development 11,063 7,527 47% General and administrative 60,505 71,608 -16% Total non-cash stock-based compensation expense $ 94,898 $ 97,506 -3% Depreciation and Amortization During the year ended December 31, 2022, depreciation and amortization expense increased from the prior year primarily due to the development of additional technology and purchases of other related fixed assets.
Non-Cash Stock-Based Compensation Expense The following table presents the non-cash stock-based compensation expense that is included within the specified line items in our consolidated statements of comprehensive income: Year Ended December 31, 2023 2022 % Change Operating expenses $ 10,613 $ 4,671 127% Sales and marketing 23,870 18,659 28% Research and development 22,273 11,063 101% General and administrative 73,050 60,505 21% Total non-cash stock-based compensation expense $ 129,806 $ 94,898 37% Depreciation and Amortization During the year ended December 31, 2023, depreciation and amortization expense increased from the prior year primarily due to the development of additional technology and purchases of other related fixed assets.
Collectability is reasonably assured as the fees are collected through an automated clearing house as part of the client’s payroll cycle or through direct wire transfer, which minimizes the default risk.
Recurring revenues are recognized at the conclusion of processing of each client’s payroll period, when each respective payroll client is billed. Collectability is reasonably assured as the fees are generally collected through an automated clearing house as part of the client’s payroll cycle or through direct wire transfer, which minimizes the default risk.
Consequently, we have historically generated the majority of our revenues from our payroll applications, although our revenue mix has evolved and will continue to evolve as we develop and add new non-payroll applications to our solution. We believe our strategy of focusing on increased employee usage is key to long-term client satisfaction and client retention.
Consequently, we have historically generated the majority of our revenues from our payroll applications, although our revenue mix has evolved and will continue to evolve as we develop and add new non-payroll applications to our solution.
For additional information regarding our naming rights agreement, leases, long-term debt and our commitments and contingencies, see “Note 4. Goodwill and Intangible Assets, Net”, “Note 5. Leases”, “Note 6. Long-Term Debt, Net” and “Note 13. Commitments and Contingencies”. We plan to continue to lease additional office space to support our growth.
For additional information regarding our naming rights agreement, leases, and our commitments and contingencies, see “Note 4. Goodwill and Intangible Assets, Net”, “Note 5. Leases” and “Note 13. Commitments and Contingencies”. We plan to continue to lease additional office space to support our growth. In addition, many of our existing lease agreements provide us with the option to renew.
In addition, many of our existing lease agreements provide us with the option to renew. When applicable, our future operating lease obligations include payments due during any renewal period provided for in the lease where the lease imposes a penalty for failure to renew. Additional details on our leases, including the related future cash outflows, are included within “Note 5.
When applicable, our future operating lease obligations include payments due during any renewal period provided for in the lease where the lease imposes a penalty for failure to renew. Additional details on our leases, including the related future cash outflows, are included within “Note 5. Leases” in the notes to our consolidated financial statements included elsewhere within this Form 10-K.
When we calculate the number of clients at period end, we treat client accounts with separate taxpayer identification numbers (or, in certain circumstances, separate client codes) as separate clients, which often separates client accounts that are affiliated with the same parent organization. We track the number of our clients to provide an accurate gauge of the size of our business.
Amounts for 2022 and 2021 have been recast to reflect the new methodology. • Clients. When we calculate the number of clients at period end, we treat client accounts with separate taxpayer identification numbers (or, in certain circumstances, separate client codes) as separate clients, which often separates client accounts that are affiliated with the same parent organization.
Deferred tax assets and liabilities are measured using the tax rates expected to apply to taxable income for the years in which those tax assets and liabilities are expected to be realized or settled. We recognize a valuation allowance to reduce deferred tax assets to the net amount we believe is more likely than not to be realized.
Deferred tax assets and liabilities are measured using the tax rates expected to apply to taxable income for the years in which those tax assets and liabilities are expected to be realized or settled.
During the year ended December 31, 2022, we repurchased an aggregate of 364,667 shares of common stock at an average cost of $273.74 per share, including 17,355 shares withheld to satisfy tax withholding obligations for certain employees upon the vesting of restricted stock.
During the year ended December 31, 2023, we repurchased an aggregate of 1,495,752 shares of our common stock at an average cost of $200.93 per share, including 51,119 shares withheld to satisfy tax withholding obligations for certain employees upon the vesting of equity incentive awards.
Our annual revenue retention rate tracks the percentage of revenues that we retain from our existing clients. We monitor this metric because it is an indicator of client satisfaction and revenues for future periods. Components of Results of Operations Sources of Revenues Revenues are comprised of recurring revenues, and implementation and other revenues.
Our annual revenue retention rate tracks the percentage of revenues that we retain from our existing clients. We monitor this metric because it is an indicator of client satisfaction and revenues for future periods. During the year ended December 31, 2023, we modified the method by which we calculate annual revenue retention rate.
Results of Operations The following table sets forth selected consolidated statements of income data and such data as a percentage of total revenues for each of the periods indicated, as well as year-over-year changes with respect to each line item. Refer to “Item 7.
We recognize a valuation allowance to reduce deferred tax assets to the net amount we believe is more likely than not to be realized. 45 Results of Operations The following table sets forth selected consolidated statements of income data and such data as a percentage of total revenues for each of the periods indicated, as well as year-over-year changes with respect to each line item.
The balance of the funds we hold depends on our clients’ payroll calendars, and therefore such balance changes from period to period in accordance with the timing of each payroll cycle.
Our cash flows from investing and financing activities are influenced by the amount of funds held for clients, which can vary significantly from quarter to quarter. The balance of the funds we hold depends on our clients’ payroll calendars, and therefore such balance changes from period to period in accordance with the timing of each payroll cycle.
Our payroll application is the foundation of our solution, and all of our clients are required to utilize this application in order to access our other applications.
Growth Outlook, Opportunities and Challenges As a result of our significant revenue growth and geographic expansion, we are presented with a variety of opportunities and challenges. Our payroll application is the foundation of our solution and all of our clients are required to utilize this application in order to access our other applications.
Administrative Expenses Sales and marketing During the year ended December 31, 2022, sales and marketing expenses increased from the prior year by $70.6 million due to a $54.8 million increase in employee-related expenses, including commissions and bonuses, and a $15.8 million increase in marketing and advertising expense attributable to increased spending across many components of our marketing program.
Depreciation and amortization expense increased $9.7 million, or 22%, primarily due to the development of additional technology and purchases of other related fixed assets. 46 Administrative Expenses Sales and marketing During the year ended December 31, 2023, sales and marketing expenses increased from the prior year by $71.1 million due to a $51.7 million increase in employee-related expenses, including commissions and bonuses, and a $19.4 million increase in marketing and advertising expense attributable to increased spending across many components of our marketing program.
Cash Flow Analysis Our cash flows from operating activities have historically been significantly impacted by profitability, implementation revenues received but deferred, our investment in sales and marketing to drive growth, and research and development. Our ability to meet future liquidity needs will be driven by our operating performance and the extent of continued investment in our operations.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.” Cash Flow Analysis Our cash flows from operating activities have historically been significantly impacted by profitability, implementation revenues received but deferred, our investment in sales and marketing to drive growth, and research and development.
Under the July 2022 Credit Agreement, we are required to maintain as of the end of each fiscal quarter a consolidated interest ratio of not less than 3.0 to 1.0 and a consolidated leverage ratio of not greater than 3.75 to 1.0, stepping down to 3.0 to 1.0 at intervals thereafter.
Under the Credit Agreement, we are required to maintain as of the end of each fiscal quarter a consolidated interest coverage ratio of not less than 3.0 to 1.0 and a consolidated leverage ratio of not greater than 3.5 to 1.0, stepping down to 3.25 to 1.0 as of December 31, 2024 and 3.0 to 1.0 as of December 31, 2025 and thereafter. 48 On July 29, 2022, we borrowed $29.0 million under the Revolving Credit Facility to repay the outstanding indebtedness under our prior credit facility, along with accrued interest, expenses and fees.
Year Ended December 31, 2022 2021 % Change Revenues Recurring $ 1,351,856 98.3 % $ 1,036,691 98.2 % 30.4% Implementation and other 23,362 1.7 % 18,833 1.8 % 24.0% Total revenues 1,375,218 100.0 % 1,055,524 100.0 % 30.3% Cost of revenues Operating expenses 169,806 12.4 % 130,475 12.3 % 30.1% Depreciation and amortization 42,935 3.1 % 31,411 3.0 % 36.7% Total cost of revenues 212,741 15.5 % 161,886 15.3 % 31.4% Administrative expenses Sales and marketing 346,561 25.2 % 275,994 26.1 % 25.6% Research and development 148,343 10.8 % 118,426 11.2 % 25.3% General and administrative 239,130 17.4 % 209,840 19.9 % 14.0% Depreciation and amortization 49,764 3.6 % 35,811 3.4 % 39.0% Total administrative expenses 783,798 57.0 % 640,071 60.6 % 22.5% Total operating expenses 996,539 72.5 % 801,957 75.9 % 24.3% Operating income 378,679 27.5 % 253,567 24.1 % 49.3% Interest expense (2,536 ) -0.2 % — 0.0 % -100.0% Other income (expense), net 13,435 1.0 % 2,395 0.2 % 461.1% Income before income taxes 389,578 28.3 % 255,962 24.3 % 52.2% Provision for income taxes 108,189 7.8 % 60,002 5.7 % 80.3% Net income $ 281,389 20.5 % $ 195,960 18.6 % 43.6% 37 Revenues The increase in total revenues for the year ended December 31, 2022 from the year ended December 31, 2021 was primarily the result of the addition of new clients and productivity and efficiency gains in mature sales offices, which are offices that have been open for at least 24 months, and the sale of additional applications to our existing clients.
Year Ended December 31, 2023 2022 % Change Revenues Recurring $ 1,664,976 98.3 % $ 1,351,856 98.3 % 23.2% Implementation and other 28,698 1.7 % 23,362 1.7 % 22.8% Total revenues 1,693,674 100.0 % 1,375,218 100.0 % 23.2% Cost of revenues Operating expenses 223,699 13.2 % 169,806 12.4 % 31.7% Depreciation and amortization 52,591 3.1 % 42,935 3.1 % 22.5% Total cost of revenues 276,290 16.3 % 212,741 15.5 % 29.9% Administrative expenses Sales and marketing 417,617 24.7 % 346,561 25.2 % 20.5% Research and development 198,951 11.7 % 148,343 10.8 % 34.1% General and administrative 288,137 17.0 % 239,130 17.4 % 20.5% Depreciation and amortization 61,357 3.6 % 49,764 3.6 % 23.3% Total administrative expenses 966,062 57.0 % 783,798 57.0 % 23.3% Total operating expenses 1,242,352 73.4 % 996,539 72.5 % 24.7% Operating income 451,322 26.6 % 378,679 27.5 % 19.2% Interest expense (1,927 ) -0.1 % (2,536 ) -0.2 % -24.0% Other income (expense), net 23,004 1.4 % 13,435 1.0 % 71.2% Income before income taxes 472,399 27.9 % 389,578 28.3 % 21.3% Provision for income taxes 131,611 7.8 % 108,189 7.8 % 21.6% Net income $ 340,788 20.1 % $ 281,389 20.5 % 21.1% Revenues The increase in total revenues for the year ended December 31, 2023 from the year ended December 31, 2022 was primarily the result of the addition of new clients in our target market range and productivity and efficiency gains across our sales offices, which were partially offset by a decrease in revenue generated by the sale of additional applications to our existing clients.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

3 edited+6 added−3 removed1 unchanged
Biggest changeWe consider all highly liquid debt instruments purchased with a maturity of three months or less and SEC-registered money market mutual funds to be cash equivalents. The primary objectives of our investing activities are capital preservation, meeting our liquidity needs and, with respect to investing client funds, generating interest income while maintaining the safety of principal.
Biggest changeOur available-for-sale securities consisted of U.S. treasury securities with an original maturity greater than one year and certificates of deposit. The primary objectives of our investing activities are capital preservation, meeting our liquidity needs and, with respect to investing client funds, generating interest income while maintaining the safety of principal.
We do not enter into investments for trading or speculative purposes. Our cash equivalents are subject to market risk due to changes in interest rates. The market value of fixed rate securities may be adversely affected due to a rise in interest rates, while floating rate securities may produce less income than expected if interest rates fall.
We do not enter into investments for trading or speculative purposes. Our investments are subject to market risk due to changes in interest rates. The market value of fixed rate securities may be adversely affected due to a rise in interest rates, while floating rate securities may produce less income than expected if interest rates fall.
Item 7A. Quantitative and Qualitat ive Disclosures about Market Risk Interest rate sensitivity We had cash and cash equivalents totaling $400.7 million as of December 31, 2022. These amounts are invested primarily in demand deposit accounts and money market funds.
Item 7A. Quantitative and Qualitat ive Disclosures about Market Risk Interest rate sensitivity As of December 31, 2023, we had corporate cash and cash equivalents totaling $294.0 million and funds held for clients cash and cash equivalents totaling $2.3 billion. These amounts are invested primarily in demand deposit accounts and money market funds.
Removed
As of December 31, 2022, we had $29.0 million of indebtedness outstanding under the July 2022 Revolving Credit Facility.
Added
We consider all highly liquid debt instruments with an original maturity of three months or less and SEC-registered money market mutual funds to be cash equivalents. Additionally, we had available-for-sale securities totaling $198.6 million included within funds held for clients on the consolidated balance sheets as of December 31, 2023.
Removed
As described elsewhere in this Form 10-K, our borrowings under the July 2022 Revolving Credit Facility bear interest at the Adjusted Term SOFR Rate for the interest period in effect plus 1.25%, and as a result, we may be exposed to increased interest rate risk.
Added
We classify all debt securities as available-for-sale and, as a result, no gains or losses are recognized due to changes in interest rates until such securities are sold or decreases in fair value are determined to be nonrecoverable. To date, we have not recorded any credit impairment losses on our portfolio.
Removed
As of December 31, 2022, an increase or decrease in interest rates of 100 basis points would not have had a material effect on our operating results or financial condition. 46
Added
As of December 31, 2023, a hypothetical increase or decrease in interest rates of 100 basis points would result in an approximately $19.2 million increase or decrease, respectively, in interest earned on funds held for clients over the ensuing 12-month period. Interest earned on funds held for clients is included in recurring revenues in the consolidated statements of comprehensive income.
Added
There are no incremental costs of revenue associated with changes in interest earned on funds held for clients. An immediate increase in interest rates of 100 basis points would have resulted in a $0.5 million reduction in the aggregate market value of our fixed rate securities as of December 31, 2023.
Added
An immediate decrease in interest rates of 100 basis points would have resulted in a $0.5 million increase in the aggregate market value of our fixed rate securities as of December 31, 2023. These estimates are based on a sensitivity model that measures market value changes when changes in interest rates occur.
Added
As of December 31, 2023, we did not have any indebtedness outstanding under the Revolving Credit Facility. As of December 31, 2023, a hypothetical 100 basis point change in the applicable reference rates would not result in a change our interest expense over the ensuing 12-month period. Please refer to “Note 6. Long-Term Debt” for additional information. 54

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