UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2022
☐ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ______ to ______
Commission File Number: 001-36393
Paycom Software, Inc.
(Exact name of registrant as specified in its charter)
Delaware |
|
80-0957485 |
(State or other jurisdiction of incorporation or organization) |
|
(I.R.S. Employer Identification Number) |
|
|
|
7501 W. Memorial Road Oklahoma City, Oklahoma |
|
73142 |
(Address of principal executive offices) |
|
(Zip Code) |
(405) 722-6900
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
|
Trading Symbol(s) |
|
Name of each exchange on which registered |
Common Stock, $0.01 par value |
|
PAYC |
|
New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☒ |
|
Accelerated filer |
☐ |
|
|
|
|
Non-accelerated filer ☐ |
|
Smaller reporting company |
☐ |
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of October 25, 2022, there were 60,020,369 shares of common stock, par value of $0.01 per share, outstanding, including 2,153,904 shares of restricted stock.
Paycom Software, Inc.
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Item 1. |
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3 |
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3 |
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4 |
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5 |
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6 |
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7 |
Item 2. |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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21 |
Item 3. |
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33 |
Item 4. |
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33 |
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Item 1. |
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34 |
Item 1A. |
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34 |
Item 2. |
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34 |
Item 5. |
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34 |
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Item 6. |
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36 |
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37 |
||
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Paycom Software, Inc.
Unaudited Consolidated Balance Sheets
(in thousands, except per share amounts)
|
|
September 30, 2022 |
|
|
December 31, 2021 |
|
||
Assets |
|
|
|
|
|
|
||
Current assets: |
|
|
|
|
|
|
||
Cash and cash equivalents |
|
$ |
317,163 |
|
|
$ |
277,978 |
|
Accounts receivable |
|
|
14,896 |
|
|
|
9,490 |
|
Prepaid expenses |
|
|
39,717 |
|
|
|
23,729 |
|
Inventory |
|
|
1,471 |
|
|
|
1,131 |
|
Income tax receivable |
|
|
15,168 |
|
|
|
16,413 |
|
Deferred contract costs |
|
|
90,832 |
|
|
|
76,724 |
|
Current assets before funds held for clients |
|
|
479,247 |
|
|
|
405,465 |
|
Funds held for clients |
|
|
1,749,115 |
|
|
|
1,846,573 |
|
Total current assets |
|
|
2,228,362 |
|
|
|
2,252,038 |
|
Property and equipment, net |
|
|
383,860 |
|
|
|
348,953 |
|
Intangible assets, net |
|
|
54,993 |
|
|
|
58,028 |
|
Goodwill |
|
|
51,889 |
|
|
|
51,889 |
|
Long-term deferred contract costs |
|
|
536,942 |
|
|
|
461,852 |
|
Other assets |
|
|
58,524 |
|
|
|
42,385 |
|
Total assets |
|
$ |
3,314,570 |
|
|
$ |
3,215,145 |
|
Liabilities and Stockholders’ Equity |
|
|
|
|
|
|
||
Current liabilities: |
|
|
|
|
|
|
||
Accounts payable |
|
$ |
10,211 |
|
|
$ |
5,772 |
|
Accrued commissions and bonuses |
|
|
19,037 |
|
|
|
22,357 |
|
Accrued payroll and vacation |
|
|
36,069 |
|
|
|
34,259 |
|
Deferred revenue |
|
|
19,546 |
|
|
|
16,277 |
|
Current portion of long-term debt |
|
|
— |
|
|
|
1,775 |
|
Accrued expenses and other current liabilities |
|
|
58,797 |
|
|
|
63,397 |
|
Current liabilities before client funds obligation |
|
|
143,660 |
|
|
|
143,837 |
|
Client funds obligation |
|
|
1,754,095 |
|
|
|
1,846,573 |
|
Total current liabilities |
|
|
1,897,755 |
|
|
|
1,990,410 |
|
Deferred income tax liabilities, net |
|
|
139,368 |
|
|
|
145,504 |
|
Long-term deferred revenue |
|
|
94,465 |
|
|
|
85,149 |
|
Net long-term debt, less current portion |
|
|
29,000 |
|
|
|
27,380 |
|
Other long-term liabilities |
|
|
77,602 |
|
|
|
72,988 |
|
Total long-term liabilities |
|
|
340,435 |
|
|
|
331,021 |
|
Total liabilities |
|
|
2,238,190 |
|
|
|
2,321,431 |
|
|
|
|
|
|
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|||
Stockholders’ equity: |
|
|
|
|
|
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||
Common stock, $0.01 par value (100,000 shares authorized, 62,517 and 62,298 shares issued at September 30, 2022 and December 31, 2021, respectively; 57,867 and 58,012 shares outstanding at September 30, 2022 and December 31, 2021, respectively) |
|
|
625 |
|
|
|
623 |
|
Additional paid-in capital |
|
|
550,302 |
|
|
|
465,594 |
|
Retained earnings |
|
|
1,117,017 |
|
|
|
915,579 |
|
Accumulated other comprehensive earnings (loss) |
|
|
(3,813 |
) |
|
|
— |
|
Treasury stock, at cost (4,650 and 4,286 shares at September 30, 2022 and December 31, 2021, respectively) |
|
|
(587,751 |
) |
|
|
(488,082 |
) |
Total stockholders’ equity |
|
|
1,076,380 |
|
|
|
893,714 |
|
Total liabilities and stockholders’ equity |
|
$ |
3,314,570 |
|
|
$ |
3,215,145 |
|
See accompanying notes to the unaudited consolidated financial statements.
3
Paycom Software, Inc.
Unaudited Consolidated Statements of Comprehensive Income
(in thousands, except per share amounts)
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Recurring |
|
$ |
328,150 |
|
|
$ |
251,306 |
|
|
$ |
987,848 |
|
|
$ |
756,665 |
|
Implementation and other |
|
|
6,017 |
|
|
|
4,888 |
|
|
|
16,762 |
|
|
|
13,873 |
|
Total revenues |
|
|
334,167 |
|
|
|
256,194 |
|
|
|
1,004,610 |
|
|
|
770,538 |
|
Cost of revenues |
|
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|
|
|
|
|
|
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|
|
|
||||
Operating expenses |
|
|
44,169 |
|
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|
34,766 |
|
|
|
122,265 |
|
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|
92,612 |
|
Depreciation and amortization |
|
|
10,935 |
|
|
|
7,914 |
|
|
|
31,405 |
|
|
|
22,751 |
|
Total cost of revenues |
|
|
55,104 |
|
|
|
42,680 |
|
|
|
153,670 |
|
|
|
115,363 |
|
Administrative expenses |
|
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|
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|
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|
||||
Sales and marketing |
|
|
91,114 |
|
|
|
69,745 |
|
|
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253,834 |
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|
200,485 |
|
Research and development |
|
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40,366 |
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31,077 |
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108,774 |
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84,012 |
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General and administrative |
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|
60,693 |
|
|
|
59,980 |
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|
179,109 |
|
|
|
160,234 |
|
Depreciation and amortization |
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12,625 |
|
|
|
9,407 |
|
|
|
36,378 |
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|
|
25,503 |
|
Total administrative expenses |
|
|
204,798 |
|
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|
170,209 |
|
|
|
578,095 |
|
|
|
470,234 |
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Total operating expenses |
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259,902 |
|
|
|
212,889 |
|
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|
731,765 |
|
|
|
585,597 |
|
Operating income |
|
|
74,265 |
|
|
|
43,305 |
|
|
|
272,845 |
|
|
|
184,941 |
|
Interest expense |
|
|
(1,018 |
) |
|
|
— |
|
|
|
(1,587 |
) |
|
|
— |
|
Other income (expense), net |
|
|
2,041 |
|
|
|
244 |
|
|
|
4,331 |
|
|
|
1,019 |
|
Income before income taxes |
|
|
75,288 |
|
|
|
43,549 |
|
|
|
275,589 |
|
|
|
185,960 |
|
Provision for income taxes |
|
|
23,135 |
|
|
|
13,170 |
|
|
|
74,151 |
|
|
|
38,687 |
|
Net income |
|
$ |
52,153 |
|
|
$ |
30,379 |
|
|
$ |
201,438 |
|
|
$ |
147,273 |
|
Earnings per share, basic |
|
$ |
0.90 |
|
|
$ |
0.52 |
|
|
$ |
3.48 |
|
|
$ |
2.55 |
|
Earnings per share, diluted |
|
$ |
0.90 |
|
|
$ |
0.52 |
|
|
$ |
3.46 |
|
|
$ |
2.53 |
|
Weighted average shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic |
|
|
57,865 |
|
|
|
57,935 |
|
|
|
57,949 |
|
|
|
57,843 |
|
Diluted |
|
|
58,033 |
|
|
|
58,190 |
|
|
|
58,193 |
|
|
|
58,192 |
|
Comprehensive earnings (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income |
|
$ |
52,153 |
|
|
$ |
30,379 |
|
|
$ |
201,438 |
|
|
$ |
147,273 |
|
Unrealized net gains (losses) on available-for-sale securities |
|
|
(2,705 |
) |
|
|
— |
|
|
|
(4,881 |
) |
|
|
— |
|
Tax effect |
|
|
492 |
|
|
|
— |
|
|
|
1,068 |
|
|
|
— |
|
Other comprehensive income (loss), net of tax |
|
|
(2,213 |
) |
|
|
— |
|
|
|
(3,813 |
) |
|
|
— |
|
Comprehensive earnings (loss) |
|
$ |
49,940 |
|
|
$ |
30,379 |
|
|
$ |
197,625 |
|
|
$ |
147,273 |
|
See accompanying notes to the unaudited consolidated financial statements.
4
Paycom Software, Inc.
Unaudited Consolidated Statements of Stockholders’ Equity
(in thousands)
|
Common Stock |
|
|
Additional |
|
|
Retained |
|
|
Accumulated Other |
|
|
Treasury Stock |
|
|
Total |
|
||||||||||||||
|
Shares |
|
|
Amount |
|
|
Paid-in Capital |
|
|
Earnings |
|
|
Comprehensive Loss |
|
|
Shares |
|
|
Amount |
|
|
Stockholders’ Equity |
|
||||||||
Balances at December 31, 2020 |
|
61,861 |
|
|
$ |
618 |
|
|
$ |
357,908 |
|
|
$ |
719,619 |
|
|
$ |
— |
|
|
|
4,122 |
|
|
$ |
(422,502 |
) |
|
$ |
655,643 |
|
Vesting of restricted stock |
|
3 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Stock-based compensation |
|
— |
|
|
|
— |
|
|
|
25,594 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
25,594 |
|
Repurchases of common stock |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1 |
|
|
|
(377 |
) |
|
|
(377 |
) |
Net income |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
64,616 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
64,616 |
|
Balances at March 31, 2021 |
|
61,864 |
|
|
$ |
618 |
|
|
$ |
383,502 |
|
|
$ |
784,235 |
|
|
$ |
— |
|
|
|
4,123 |
|
|
$ |
(422,879 |
) |
|
$ |
745,476 |
|
Vesting of restricted stock |
|
271 |
|
|
|
3 |
|
|
|
(3 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Stock-based compensation |
|
— |
|
|
|
— |
|
|
|
26,480 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
26,480 |
|
Repurchases of common stock |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
94 |
|
|
|
(31,978 |
) |
|
|
(31,978 |
) |
Net income |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
52,278 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
52,278 |
|
Balances at June 30, 2021 |
|
62,135 |
|
|
$ |
621 |
|
|
$ |
409,979 |
|
|
$ |
836,513 |
|
|
$ |
— |
|
|
|
4,217 |
|
|
$ |
(454,857 |
) |
|
$ |
792,256 |
|
Vesting of restricted stock |
|
140 |
|
|
|
1 |
|
|
|
(1 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Stock-based compensation |
|
— |
|
|
|
— |
|
|
|
31,501 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
31,501 |
|
Repurchases of common stock |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
61 |
|
|
|
(28,795 |
) |
|
|
(28,795 |
) |
Net income |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
30,379 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
30,379 |
|
Balances at September 30, 2021 |
|
62,275 |
|
|
$ |
622 |
|
|
$ |
441,479 |
|
|
$ |
866,892 |
|
|
$ |
— |
|
|
|
4,278 |
|
|
$ |
(483,652 |
) |
|
$ |
825,341 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
|
Common Stock |
|
|
Additional |
|
|
Retained |
|
|
Accumulated Other |
|
|
Treasury Stock |
|
|
Total |
|
||||||||||||||
|
Shares |
|
|
Amount |
|
|
Paid-in Capital |
|
|
Earnings |
|
|
Comprehensive Loss |
|
|
Shares |
|
|
Amount |
|
|
Stockholders’ Equity |
|
||||||||
Balances at December 31, 2021 |
|
62,298 |
|
|
$ |
623 |
|
|
$ |
465,594 |
|
|
$ |
915,579 |
|
|
$ |
— |
|
|
|
4,286 |
|
|
$ |
(488,082 |
) |
|
$ |
893,714 |
|
Vesting of restricted stock |
|
4 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Stock-based compensation |
|
— |
|
|
|
— |
|
|
|
24,713 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
24,713 |
|
Repurchases of common stock |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1 |
|
|
|
(218 |
) |
|
|
(218 |
) |
Net income |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
91,930 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
91,930 |
|
Other comprehensive earnings (loss), net of tax |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1,119 |
) |
|
|
— |
|
|
|
— |
|
|
|
(1,119 |
) |
Balances at March 31, 2022 |
|
62,302 |
|
|
$ |
623 |
|
|
$ |
490,307 |
|
|
$ |
1,007,509 |
|
|
$ |
(1,119 |
) |
|
|
4,287 |
|
|
$ |
(488,300 |
) |
|
$ |
1,009,020 |
|
Vesting of restricted stock |
|
212 |
|
|
|
2 |
|
|
|
(2 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Stock-based compensation |
|
— |
|
|
|
— |
|
|
|
27,472 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
27,472 |
|
Repurchases of common stock |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
363 |
|
|
|
(99,227 |
) |
|
|
(99,227 |
) |
Net income |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
57,355 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
57,355 |
|
Other comprehensive earnings (loss), net of tax |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(481 |
) |
|
|
— |
|
|
|
— |
|
|
|
(481 |
) |
Balances at June 30, 2022 |
|
62,514 |
|
|
$ |
625 |
|
|
$ |
517,777 |
|
|
$ |
1,064,864 |
|
|
$ |
(1,600 |
) |
|
|
4,650 |
|
|
$ |
(587,527 |
) |
|
$ |
994,139 |
|
Vesting of restricted stock |
|
3 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Stock-based compensation |
|
— |
|
|
|
— |
|
|
|
32,525 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
32,525 |
|
Repurchases of common stock |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(224 |
) |
|
|
(224 |
) |
Net income |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
52,153 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
52,153 |
|
Other comprehensive earnings (loss), net of tax |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2,213 |
) |
|
|
— |
|
|
|
— |
|
|
|
(2,213 |
) |
Balances at September 30, 2022 |
|
62,517 |
|
|
$ |
625 |
|
|
$ |
550,302 |
|
|
$ |
1,117,017 |
|
|
$ |
(3,813 |
) |
|
|
4,650 |
|
|
$ |
(587,751 |
) |
|
$ |
1,076,380 |
|
See accompanying notes to the unaudited consolidated financial statements.
5
Paycom Software, Inc.
Unaudited Consolidated Statements of Cash Flows
(in thousands)
|
|
Nine Months Ended September 30, |
|||||||
|
|
2022 |
|
|
2021 |
|
|
||
Cash flows from operating activities |
|
|
|
|
|
|
|
||
Net income |
|
$ |
201,438 |
|
|
$ |
147,273 |
|
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
||
Depreciation and amortization |
|
|
67,783 |
|
|
|
48,254 |
|
|
Accretion of discount on available-for-sale securities |
|
|
(872 |
) |
|
|
(276 |
) |
|
Non-cash marketing expense |
|
|
1,320 |
|
|
|
618 |
|
|
Loss on disposition of property and equipment |
|
|
— |
|
|
|
146 |
|
|
Amortization of debt issuance costs |
|
|
532 |
|
|
|
27 |
|
|
Stock-based compensation expense |
|
|
70,815 |
|
|
|
76,364 |
|
|
Cash paid for derivative settlement |
|
|
205 |
|
|
|
(558 |
) |
|
Gain on derivative |
|
|
(1,559 |
) |
|
|
(305 |
) |
|
Deferred income taxes, net |
|
|
(4,841 |
) |
|
|
12,630 |
|
|
Other |
|
|
(227 |
) |
|
|
— |
|
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
||
Accounts receivable |
|
|
(5,406 |
) |
|
|
(3,874 |
) |
|
Prepaid expenses |
|
|
(11,203 |
) |
|
|
(8,789 |
) |
|
Inventory |
|
|
27 |
|
|
|
97 |
|
|
Other assets |
|
|
(10,104 |
) |
|
|
671 |
|
|
Deferred contract costs |
|
|
(86,634 |
) |
|
|
(68,041 |
) |
|
Accounts payable |
|
|
4,159 |
|
|
|
1,659 |
|
|
Income taxes, net |
|
|
1,245 |
|
|
|
236 |
|
|
Accrued commissions and bonuses |
|
|
(3,320 |
) |
|
|
(1,272 |
) |
|
Accrued payroll and vacation |
|
|
1,810 |
|
|
|
11,609 |
|
|
Deferred revenue |
|
|
12,585 |
|
|
|
11,051 |
|
|
Accrued expenses and other current liabilities |
|
|
(1,106 |
) |
|
|
2,117 |
|
|
Net cash provided by operating activities |
|
|
236,647 |
|
|
|
229,637 |
|
|
Cash flows from investing activities |
|
|
|
|
|
|
|
||
Purchases of investments from funds held for clients |
|
|
(268,718 |
) |
|
|
(170,760 |
) |
|
Proceeds from investments from funds held for clients |
|
|
328,731 |
|
|
|
195,000 |
|
|
Purchases of intangible assets |
|
|
— |
|
|
|
(1,500 |
) |
|
Purchases of property and equipment |
|
|
(92,041 |
) |
|
|
(86,718 |
) |
|
Net cash used in investing activities |
|
|
(32,028 |
) |
|
|
(63,978 |
) |
|
Cash flows from financing activities |
|
|
|
|
|
|
|
||
Proceeds from issuance of debt |
|
|
29,000 |
|
|
|
— |
|
|
Repurchases of common stock |
|
|
(94,652 |
) |
|
|
— |
|
|
Withholding taxes paid related to net share settlements |
|
|
(5,017 |
) |
|
|
(61,149 |
) |
|
Payments on long-term debt |
|
|
(29,287 |
) |
|
|
(1,331 |
) |
|
Net change in client funds obligation |
|
|
(92,478 |
) |
|
|
1,346,479 |
|
|
Payment of debt issuance costs |
|
|
(6,437 |
) |
|
|
— |
|
|
Net cash used in (provided by) financing activities |
|
|
(198,871 |
) |
|
|
1,283,999 |
|
|
Increase in cash, cash equivalents, restricted cash and restricted cash equivalents |
|
|
5,748 |
|
|
|
1,449,658 |
|
|
Cash, cash equivalents, restricted cash and restricted cash equivalents |
|
|
|
|
|
|
|
||
Cash, cash equivalents, restricted cash and restricted cash equivalents, beginning of period |
|
|
1,812,691 |
|
|
|
1,585,275 |
|
|
Cash, cash equivalents, restricted cash and restricted cash equivalents, end of period |
|
$ |
1,818,439 |
|
|
$ |
3,034,933 |
|
|
|
|
Nine Months Ended September 30, |
|||||||
|
|
2022 |
|
|
2021 |
|
|
||
Reconciliation of cash, cash equivalents, restricted cash and restricted cash equivalents |
|
|
|
|
|
|
|
||
Cash and cash equivalents |
|
$ |
317,163 |
|
|
$ |
230,926 |
|
|
Restricted cash included in funds held for clients |
|
|
1,501,276 |
|
|
|
2,804,007 |
|
|
Total cash, cash equivalents, restricted cash and restricted cash equivalents, end of period |
|
$ |
1,818,439 |
|
|
$ |
3,034,933 |
|
|
|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
||
Supplemental disclosures of cash flow information: |
|
|
|
|
|
|
|
||
Non-cash investing and financing activities: |
|
|
|
|
|
|
|
||
Purchases of property and equipment, accrued but not paid |
|
$ |
3,355 |
|
|
$ |
5,994 |
|
|
Stock-based compensation for capitalized software |
|
$ |
6,545 |
|
|
$ |
5,108 |
|
|
Right of use assets obtained in exchange for operating lease liabilities |
|
$ |
14,385 |
|
|
$ |
4,439 |
|
|
See accompanying notes to the unaudited consolidated financial statements.
6
Paycom Software, Inc.
Notes to the Unaudited Consolidated Financial Statements
(tabular dollars and shares in thousands, except per share and per unit amounts)
Paycom Software, Inc. (“Software”) and its wholly-owned subsidiaries (collectively, the “Company”) is a leading provider of a comprehensive, cloud-based human capital management (“HCM”) solution delivered as Software-as-a-Service. Unless we state otherwise or the context otherwise requires, the terms “we,” “our,” “us” and the “Company” refer to Software and its consolidated subsidiaries.
We provide functionality and data analytics that businesses need to manage the complete employment lifecycle, from recruitment to retirement. Our solution requires virtually no customization and is based on a core system of record maintained in a single database for all HCM functions, including talent acquisition, time and labor management, payroll, talent management and human resources (“HR”) management applications.
Our significant accounting policies are discussed in “Note 2. Summary of Significant Accounting Policies” in the notes to our audited consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2021 (the “Form 10-K”) filed with the Securities and Exchange Commission (“SEC”) on February 17, 2022.
Basis of Presentation
The accompanying unaudited interim consolidated financial statements and notes have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) and applicable rules and regulations of the SEC regarding interim financial statements that permit reduced disclosure for interim periods. In the opinion of management, the unaudited consolidated financial statements reflect all adjustments of a normal recurring nature that are necessary for a fair presentation of the results for the interim periods presented. These unaudited consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and related notes presented in the Form 10-K. The results of operations for the three and nine months ended September 30, 2022 are not necessarily indicative of the results expected for the full year.
Recently Adopted Accounting Pronouncements
In , we adopted Accounting Standards Update (“ASU”) No. 2019-12, “Income Taxes (Topic 740) Simplifying the Accounting for Income Taxes” (“ASU 2019-12”) utilizing the prospective transition method. The amendments in ASU 2019-12 eliminate certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income tax in an interim period and the recognition of deferred tax liabilities for outside basis differences. ASU 2019-12 also clarifies and simplifies other aspects of the accounting for income taxes. The adoption of this guidance did not have a material impact on our unaudited interim consolidated financial statements.
In March 2020, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2020-04, “Reference Rate Reform (Topic 848) Facilitation of the Effects of Reference Rate Reform on Financial Reporting” (“ASU 2020-04”). ASU 2020-04 provides temporary optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships and other transactions affected by reference rate reform. Prior to August 24, 2022, our floating-to-fixed interest rate swap was outstanding to offset the rate variability associated with our outstanding indebtedness. As discussed in Note 7, the interest rate swap was terminated on August 24, 2022. As a result, the adoption of ASU 2020-04 had no material impact on our unaudited financial statements.
In January 2021, the FASB issued ASU No. 2021-01, “Reference Rate Reform (Topic 848) Scope” (“ASU 2021-01”), which clarifies that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivative instruments that are affected by the discounting transition. ASU 2021-01 amends the expedients and exceptions in Topic 848 to capture the incremental consequences of the scope clarification and to tailor the existing guidance to derivative instruments affected by the discounting transition. As discussed in Note 7, the interest rate swap was terminated on August 24, 2022. As a result, the adoption of ASU 2021-01 had no material impact on our unaudited financial statements.
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Significant estimates include income taxes, loss contingencies, the useful life of property and equipment and intangible assets, the life of our client relationships, the fair value of our stock-based awards and the fair value of our financial instruments, intangible assets and goodwill. These estimates are based on historical experience where applicable and other assumptions that management believes are reasonable under the circumstances. Actual results could materially differ from these estimates.
7
Paycom Software, Inc.
Notes to the Unaudited Consolidated Financial Statements
(tabular dollars and shares in thousands, except per share and per unit amounts)
Seasonality
Our revenues are seasonal in nature and generally we expect our first and fourth quarter recurring revenues to be higher than other quarters during the year. Recurring revenues include revenues relating to the annual processing of payroll tax filing forms and ACA form filing requirements, such as Form W-2, Form 1099, and Form 1095 and revenues from processing unscheduled payroll runs (such as bonuses) for our clients. As payroll tax forms are typically processed in the first quarter of the year, first quarter recurring revenues and margins are positively impacted. In addition, unscheduled payroll runs at the end of the year often result in increased recurring revenues in the fourth quarter. These seasonal fluctuations in revenues can also have an impact on gross profits. Historical results impacted by these seasonal trends should not be considered a reliable indicator of our future results of operations.
Funds Held for Clients and Client Funds Obligation
As part of our payroll and tax filing application, we (i) collect client funds to satisfy their respective federal, state and local employment tax obligations, (ii) remit such funds to the appropriate taxing authorities and accounts designated by our clients, and (iii) manage client tax filings and any related correspondence with taxing authorities. Amounts collected by us from clients for their federal, state and local employment taxes are invested by us, and we earn interest on these funds during the interval between receipt and disbursement.
These investments are shown in our consolidated balance sheets as funds held for clients, and the associated liability for the tax filings is shown as client funds obligation. The liability is recorded in the accompanying consolidated balance sheets at the time we obtain the funds from clients. The client funds obligation represents liabilities that will be repaid within one year of the consolidated balance sheet date. As of September 30, 2022 and December 31, 2021, the funds held for clients were invested in money market funds, demand deposit accounts, commercial paper and certificates of deposit. Additionally, as of September 30, 2022, the funds held for clients were invested in U.S. treasury securities with an original maturity duration of greater than one year. Short-term investments in commercial paper and certificates of deposit with an original maturity duration greater than three months are classified as available-for-sale securities, and are also included within the funds held for clients line item in the consolidated balance sheets. U.S. treasury securities with an original maturity duration of greater than one year are also classified as available-for-sale securities and included within the funds held for clients line item in the consolidated balance sheets. These available-for-sale securities are recorded in the consolidated balance sheets at fair value, with the difference between the amortized cost and fair value of these available-for-sale securities recorded as unrealized net gains (losses) on available-for-sale securities and are included within comprehensive earnings (loss) in the consolidated statements of comprehensive income. Funds held for clients are classified as a current asset in the consolidated balance sheets because the funds are held solely to satisfy the client funds obligation. Additionally, the funds held for clients is classified as restricted cash and restricted cash equivalents and presented within the reconciliation of cash, cash equivalents, restricted cash and restricted cash equivalents on the consolidated statements of cash flows.
Stock Repurchase Plan
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. Since the initial authorization of the stock repurchase plan, our Board of Directors has amended and extended and authorized new stock repurchase plans from time to time. Most recently, in August 2022, our Board of Directors authorized the repurchase of up to $1.1 billion of our common stock. As of September 30, 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. 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 restricted stock and other corporate considerations. The current stock repurchase plan will expire on August 15, 2024.
During the nine months ended September 30, 2022, we repurchased an aggregate of 364,200 shares of our common stock at an average cost of $273.67 per share, including 16,888 shares withheld to satisfy tax withholding obligations for certain employees upon the vesting of restricted stock.
Recently Issued Accounting Pronouncements
Accounting pronouncements issued, but not effective until after September 30, 2022, are not expected to have a significant impact on our consolidated financial position or results of operations.
8
Paycom Software, Inc.
Notes to the Unaudited Consolidated Financial Statements
(tabular dollars and shares in thousands, except per share and per unit amounts)
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. Substantially all of our revenues are comprised of revenue from contracts with clients. Sales taxes and other applicable taxes are excluded from revenues.
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. 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. Payroll includes Beti®, Payroll and Tax Management, 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. HR management includes our Manager on-the-Go®, Direct Data Exchange®, Ask Here, Documents and Checklists, Government and Compliance, Benefits Administration/Benefits to Carrier, Benefit Enrollment Service, COBRA Administration, Personnel Action Forms and Performance Discussion Forms, Surveys, Enhanced ACA and Clue™ applications.
The performance obligations related to recurring revenues are satisfied during each client’s payroll period, with the agreed-upon fee being charged and collected as part of our processing of the client’s payroll. 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 collected through an automated clearing house as part of the client’s payroll cycle or through direct wire transfer, which minimizes the default risk.
The contract period for substantially all contracts associated with these revenues is one month due to the fact that both we and the client have the unilateral right to terminate a wholly unperformed contract without compensating the other party by providing 30 days’ notice of termination. 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. For clients who purchase multiple applications, due to the short-term nature of our contracts, we do not believe it is meaningful to separately assess and identify whether or not each application potentially represents its own, individual, performance obligation as the revenue generated from each application is recognized within the same month as the revenue from the core payroll application. Similarly, we do not believe it is meaningful to individually determine the standalone selling price for each application. 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.
Implementation and Other Revenues
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.
Implementation activities primarily represent administrative activities that allow us to fulfill future performance obligations for our clients and do not represent services transferred to the client. However, the nonrefundable upfront fee charged to our clients results in an implied performance obligation in the form of a material right to the client related to the client’s option to renew at the end of each 30-day contract period. Further, given that all other services within the contract are sold at a total price indicative of the standalone selling price, coupled with the fact that the upfront fees are consistent with upfront fees charged in similar contracts that we have with clients, the standalone selling price of the client’s option to renew the contract approximates the dollar amount of the nonrefundable upfront fee. The nonrefundable upfront fee is typically included on the client’s first invoice, and is deferred and recognized ratably over the estimated renewal period (i.e., ten-year estimated client life).
Revenues from the sale of time clocks are recognized when control is transferred to the client upon delivery of the product. We estimate the standalone selling price for the time clocks by maximizing the use of observable inputs such as our specific pricing practices for time clocks.
9
Paycom Software, Inc.
Notes to the Unaudited Consolidated Financial Statements
(tabular dollars and shares in thousands, except per share and per unit amounts)
Contract Balances
The timing of revenue recognition for recurring services is consistent with the invoicing of clients as they both occur during the respective client payroll period for which the services are provided. Therefore, we do not recognize a contract asset or liability resulting from the timing of revenue recognition and invoicing.
Changes in deferred revenue related to material right performance obligations as of September 30, 2022 and 2021 were as follows:
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Balance, beginning of period |
|
$ |
108,880 |
|
|
$ |
92,458 |
|
|
$ |
101,426 |
|
|
$ |
86,826 |
|
Deferral of revenue |
|
|
7,109 |
|
|
|
10,573 |
|
|
|
31,723 |
|
|
|
26,071 |
|
Recognition of unearned revenue |
|
|
(1,978 |
) |
|
|
(5,154 |
) |
|
|
(19,138 |
) |
|
|
(15,020 |
) |
Balance, end of period |
|
$ |
114,011 |
|
|
$ |
97,877 |
|
|
$ |
114,011 |
|
|
$ |
97,877 |
|
We expect to recognize $7.7 million of deferred revenue related to material right performance obligations in the remainder of , $17.7 million of such deferred revenue in , and $88.6 million of such deferred revenue .
Assets Recognized from the Costs to Obtain and Costs to Fulfill Revenue Contracts
We recognize an asset for the incremental costs of obtaining a contract with a client if we expect the amortization period to be longer than one year. We also recognize an asset for the costs to fulfill a contract with a client if such costs are specifically identifiable, generate or enhance resources used to satisfy future performance obligations, and are expected to be recovered. We have determined that substantially all costs related to implementation activities are administrative in nature and also meet the capitalization criteria under ASC 340-40. These capitalized costs to fulfill principally relate to upfront direct costs that are expected to be recovered through margin and that enhance our ability to satisfy future performance obligations.
The assets related to both costs to obtain, and costs to fulfill, contracts with clients are accounted for utilizing a portfolio approach, and are capitalized and amortized ratably over the expected period of benefit, which we have determined to be the estimated client relationship of ten years. The expected period of benefit has been determined to be the estimated life of the client relationship primarily because we incur no new costs to obtain, or costs to fulfill, a contract upon renewal of such contract. Additional commission costs may be incurred when an existing client purchases additional applications; however, these commission costs relate solely to the additional applications purchased and are not related to contract renewal. Furthermore, additional fulfillment costs associated with existing clients purchasing additional applications are minimized by our seamless single-database platform. These assets are presented as deferred contract costs in the accompanying consolidated balance sheets. Amortization expense related to costs to obtain and costs to fulfill a contract are included in the “sales and marketing” and “general and administrative” line items in the accompanying consolidated statements of comprehensive income.
10
Paycom Software, Inc.
Notes to the Unaudited Consolidated Financial Statements
(tabular dollars and shares in thousands, except per share and per unit amounts)
The following tables present the asset balances and related amortization expense for these contract costs:
|
|
As of and for the Three Months Ended September 30, 2022 |
|
|||||||||||||
|
|
Beginning |
|
|
Capitalization |
|
|
|
|
|
Ending |
|
||||
|
|
Balance |
|
|
of Costs |
|
|
Amortization |
|
|
Balance |
|
||||
Costs to obtain a contract |
|
$ |
295,986 |
|
|
$ |
21,663 |
|
|
$ |
(11,530 |
) |
|
$ |
306,119 |
|
Costs to fulfill a contract |
|
$ |
302,019 |
|
|
$ |
30,195 |
|
|
$ |
(10,559 |
) |
|
$ |
321,655 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
As of and for the Three Months Ended September 30, 2021 |
|
|||||||||||||
|
|
Beginning |
|
|
Capitalization |
|
|
|
|
|
Ending |
|
||||
|
|
Balance |
|
|
of Costs |
|
|
Amortization |
|
|
Balance |
|
||||
Costs to obtain a contract |
|
$ |
248,908 |
|
|
$ |
16,648 |
|
|
$ |
(9,469 |
) |
|
$ |
256,087 |
|
Costs to fulfill a contract |
|
$ |
229,512 |
|
|
$ |
24,652 |
|
|
$ |
(7,931 |
) |
|
$ |
246,233 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
As of and for the Nine Months Ended September 30, 2022 |
|
|||||||||||||
|
|
Beginning |
|
|
Capitalization |
|
|
|
|
|
Ending |
|
||||
|
|
Balance |
|
|
of Costs |
|
|
Amortization |
|
|
Balance |
|
||||
Costs to obtain a contract |
|
$ |
272,919 |
|
|
$ |
66,544 |
|
|
$ |
(33,344 |
) |
|
$ |
306,119 |
|
Costs to fulfill a contract |
|
$ |
265,657 |
|
|
$ |
85,644 |
|
|
$ |
(29,646 |
) |
|
$ |
321,655 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
As of and for the Nine Months Ended September 30, 2021 |
|
|||||||||||||
|
|
Beginning |
|
|
Capitalization |
|
|
|
|
|
Ending |
|
||||
|
|
Balance |
|
|
of Costs |
|
|
Amortization |
|
|
Balance |
|
||||
Costs to obtain a contract |
|
$ |
232,583 |
|
|
$ |
50,890 |
|
|
$ |
(27,386 |
) |
|
$ |
256,087 |
|
Costs to fulfill a contract |
|
$ |
199,593 |
|
|
$ |
68,764 |
|
|
$ |
(22,124 |
) |
|
$ |
246,233 |
|
Property and equipment and accumulated depreciation and amortization were as follows:
|
|
September 30, 2022 |
|
|
December 31, 2021 |
|
||
Property and equipment |
|
|
|
|
|
|
||
Software and capitalized software costs |
|
$ |
252,787 |
|
|
$ |
199,470 |
|
Buildings |
|
|
177,550 |
|
|
|
172,807 |
|
Computer equipment |
|
|
123,068 |
|
|
|
102,509 |
|
Rental clocks |
|
|
34,302 |
|
|
|
30,313 |
|
Furniture, fixtures and equipment |
|
|
28,160 |
|
|
|
24,971 |
|
Other |
|
|
16,905 |
|
|
|
16,397 |
|
|
|
|
632,772 |
|
|
|
546,467 |
|
Less: accumulated depreciation and amortization |
|
|
(307,400 |
) |
|
|
(242,652 |
) |
|
|
|
325,372 |
|
|
|
303,815 |
|
Construction in progress |
|
|
24,692 |
|
|
|
11,342 |
|
Land |
|
|
33,796 |
|
|
|
33,796 |
|
Property and equipment, net |
|
$ |
383,860 |
|
|
$ |
348,953 |
|
We capitalize computer software development costs related to software developed for internal use in accordance with ASC 350-40. For the three and nine months ended September 30, 2022, we capitalized $17.0 million and $48.8 million, respectively, of computer software development costs related to software developed for internal use. For the three and nine months ended September 30, 2021, we capitalized $13.2 million and $39.2 million, respectively, of computer software development costs related to software developed for internal use.
Rental clocks included in property and equipment, net represent time clocks issued to clients under month-to-month operating leases. As such, these items are transferred from inventory to property and equipment and depreciated over their estimated useful lives.
We capitalize interest incurred for indebtedness related to construction in progress. For the three and nine months ended September 30, 2022, we incurred interest costs of $1.2 million and $2.1 million, respectively, of which we capitalized $0.2 million and
11
Paycom Software, Inc.
Notes to the Unaudited Consolidated Financial Statements
(tabular dollars and shares in thousands, except per share and per unit amounts)
$0.5 million, respectively. For the three and nine months ended September 30, 2021, we incurred interest costs of $0.4 million and $1.1 million, respectively, of which we capitalized $0.4 million and $1.1 million, respectively. Included in the construction in progress balance at September 30, 2022 and December 31, 2021 is $1.0 million and $0.1 million in retainage, respectively.
Depreciation and amortization expense for property and equipment was $22.5 million and $64.7 million, respectively, for the three and nine months ended September 30, 2022. Depreciation and amortization expense for property and equipment was $16.3 million and $46.8 million, respectively, for the three and nine months ended September 30, 2021.
As of both September 30, 2022 and December 31, 2021, goodwill was $51.9 million. We have selected June 30 as our annual goodwill impairment testing date. We performed a qualitative impairment test of our goodwill and concluded that, as of June 30, 2022, it was more likely than not that the fair value exceeded the carrying value and therefore goodwill was not impaired. As of September 30, 2022 and December 31, 2021, there were no indicators of impairment.
In connection with our marketing initiatives, we purchased the naming rights to the downtown Oklahoma City arena that is home to the Oklahoma City Thunder National Basketball Association franchise. Under the terms of the naming rights agreement, we committed to make payments escalating annually from $4.0 million in 2021 to $6.1 million in 2035. We also made a $1.5 million one-time payment in July 2021 to cover sponsorship rights leading up to the 2021-2022 season. Upon the conclusion of the initial term, the agreement may be extended upon the mutual agreement of both parties for an additional five-year period. The cost of the naming rights has been recorded as an intangible asset with an offsetting liability as of the date of the contract. The intangible asset is being amortized over the life of the agreement on a straight line basis that commenced in June 2021. The difference between the present value of the offsetting liability and actual cash payments is being relieved through sales and marketing expense using the effective interest method over the life of the agreement.
All of our intangible assets other than goodwill are considered to have definite lives and, as such, are subject to amortization. The following tables present the components of intangible assets within our consolidated balance sheets:
|
|
September 30, 2022 |
|
|||||||||||
|
|
Weighted Average Remaining |
|
|
|
|
Accumulated |
|
|
|
|
|||
|
|
Useful Life |
|
Gross |
|
|
Amortization |
|
|
Net |
|
|||
|
|
(Years) |
|
|
|
|
|
|
|
|
|
|||
Intangibles: |
|
|
|
|
|
|
|
|
|
|
|
|||
Naming rights |
|
14.1 |
|
$ |
60,199 |
|
|
$ |
(5,206 |
) |
|
$ |
54,993 |
|
Trade name |
|
— |
|
|
3,194 |
|
|
|
(3,194 |
) |
|
|
— |
|
Total |
|
|
|
$ |
63,393 |
|
|
$ |
(8,400 |
) |
|
$ |
54,993 |
|
|
|
December 31, 2021 |
|
|||||||||||
|
|
Weighted Average Remaining |
|
|
|
|
Accumulated |
|
|
|
|
|||
|
|
Useful Life |
|
Gross |
|
|
Amortization |
|
|
Net |
|
|||
|
|
(Years) |
|
|
|
|
|
|
|
|
|
|||
Intangibles: |
|
|
|
|
|
|
|
|
|
|
|
|||
Naming rights |
|
14.8 |
|
$ |
60,199 |
|
|
$ |
(2,278 |
) |
|
$ |
57,921 |
|
Trade name |
|
0.5 |
|
|
3,194 |
|
|
|
(3,087 |
) |
|
|
107 |
|
Total |
|
|
|
$ |
63,393 |
|
|
$ |
(5,365 |
) |
|
$ |
58,028 |
|
Amortization of intangible assets for the three and nine months ended September 30, 2022 was $0.9 million and $3.0 million, respectively. Amortization of intangible assets for the three and nine months ended September 30, 2021 was $1.1 million and $1.5 million, respectively. We estimate the aggregate amortization expense will be $1.0 million for the remainder of 2022 and $3.9 million for each of 2023, 2024, 2025, 2026 and 2027.
12
Paycom Software, Inc.
Notes to the Unaudited Consolidated Financial Statements
(tabular dollars and shares in thousands, except per share and per unit amounts)
Long-term debt consisted of the following:
|
|
September 30, 2022 |
|
|
December 31, 2021 |
|
||
July 2022 Revolving Credit Agreement due July 29, 2027 |
|
$ |
29,000 |
|
|
$ |
— |
|
Net term note to bank due September 7, 2025 |
|
|
— |
|
|
|
29,155 |
|
Total long-term debt, net (including current portion) |
|
|
29,000 |
|
|
|
29,155 |
|
Less: Current portion |
|
|
— |
|
|
|
(1,775 |
) |
Total long-term debt, net |
|
$ |
29,000 |
|
|
$ |
27,380 |
|
On December 7, 2017, we entered into a senior secured term credit agreement (as amended from time to time, the “2017 Term Credit Agreement”), pursuant to which JPMorgan Chase Bank, N.A., Bank of America, N.A. and Kirkpatrick Bank made certain term loans to us (the “2017 Term Loans”). Our obligations under the 2017 Term Loans were secured by a mortgage and first priority security interest in our corporate headquarters property. The 2017 Term Loans were due to mature on September 7, 2025 and bore interest, at our option, at either (a) a prime rate plus 1.0% or (b) an adjusted LIBOR rate for the interest period in effect for such 2017 Term Loan plus 1.5%.
As discussed below, the 2017 Term Loans were repaid in full on May 4, 2022 and the 2017 Term Credit Agreement was terminated. At the time of payoff, unamortized debt issuance costs totaling $0.1 million were written off.
On May 4, 2022 (the “May 2022 Facility Closing Date”), Paycom Payroll, LLC (the “Borrower”), Software, and certain other subsidiaries of Software (collectively, the “Guarantors,” and collectively with the Borrower, the “Loan Parties”), entered into a credit agreement (as amended from time to time, the “May 2022 Revolving Credit Agreement”) with Bank of America, N.A., as a lender, swingline lender and letters of credit issuer, the lenders from time to time party thereto and Bank of America, N.A., as the administrative agent.
The May 2022 Revolving Credit Agreement provided for a senior secured revolving credit facility (the “May 2022 Facility”) in the initial aggregate principal amount of up to $250.0 million, and the ability to request an incremental facility of up to an additional $100.0 million, subject to obtaining additional lender commitments and certain approvals and satisfying certain other conditions. The May 2022 Facility included a $25.0 million sublimit for swingline loans and a $2.5 million sublimit for letters of credit. On June 7, 2022, the aggregate commitments under the May 2022 Revolving Credit Agreement were increased from $250.0 million to $350.0 million. Our obligations under the May 2022 Facility were secured by a senior security interest in all personal property of the Loan Parties. The May 2022 Facility was scheduled to mature on May 4, 2027.
On the May 2022 Closing Date, we borrowed $29.0 million under the May 2022 Facility to repay the 2017 Term Loans, along with accrued interest, expenses and fees. The loan on the May 2022 Facility Closing Date bore interest at the BSBY rate plus 1.125%. In connection with the repayment of the 2017 Term Loans, the 2017 Term Credit Agreement was terminated on May 4, 2022.
As discussed below, the May 2022 Facility was repaid in full on July 29, 2022 and the May 2022 Revolving Credit Agreement was terminated.
On July 29, 2022 (the “July 2022 Facility Closing Date”), the Borrower, Software, and certain other subsidiaries of Software 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.
The July 2022 Credit Agreement provides for a senior secured revolving credit facility (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 July 2022 Credit Agreement includes a $25.0 million sublimit for swingline loans and a $6.5 million sublimit for letters of credit. The July 2022 Credit Agreement also provides for a senior secured delayed draw term loan (the “July 2022 Term Loan Facility”) in the aggregate amount of up to $750.0 million. All loans under the July 2022 Credit Agreement will mature on July 29, 2027 (the “Scheduled Maturity Date”).
13
Paycom Software, Inc.
Notes to the Unaudited Consolidated Financial Statements
(tabular dollars and shares in thousands, except per share and per unit amounts)
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”). ABR is calculated as the highest of (i) the rate of interest last quoted by The Wall Street Journal in the United States as the prime rate in effect, (ii) the federal funds rate plus 0.5% and (iii) the Adjusted Term SOFR Rate for a one-month interest period plus 1.00%; provided that, if the ABR as determined pursuant to the foregoing would be less than 1.00%, such rate shall be deemed to be 1.00%. The applicable margin for ABR Loans is (i) 0.25% if the Company’s consolidated leverage ratio is less than 1.0 to 1.0; (ii) 0.50% 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) 0.75% 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) 1.00% if the Company’s consolidated leverage ratio is greater than or equal to 3.0 to 1.0. The applicable margin for SOFR Rate Loans is (i) 1.25% if the Company’s consolidated leverage ratio is less than 1.0 to 1.0; (ii) 1.5% 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) 1.75% 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) 2.00% 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 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 also required to pay customary letter of credit fees upon drawing any letter of credit.
The July 2022 Revolving Credit Facility provides for no scheduled principal amortization prior to the Scheduled Maturity Date. Subject to certain conditions set forth in the July 2022 Credit Agreement, we may borrow, prepay and reborrow under the July 2022 Revolving Credit Facility and terminate or reduce the July 2022 Lenders’ commitments at any time prior to the Scheduled Maturity Date.
We may make up to ten draws under the July 2022 Term Loan Facility at any time during the period from and after the July 2022 Facility Closing Date through twelve months after the July 2022 Facility Closing Date. Loans under the July 2022 Term Loan Facility will amortize in equal quarterly installments commencing with the first full fiscal quarter after the earlier of (x) the date on which the July 2022 Term Loan Facility has been fully drawn and (y) the expiration of the draw period, in an aggregate annual amount equal to 7.5% in year one (if applicable) and year two, and 10% thereafter.
The proceeds of the loans and letters of credit under the July 2022 Credit Agreement are to be used for ongoing working capital and general corporate purposes, permitted acquisitions, share repurchases and refinancing the May 2022 Facility. On the July 2022 Facility Closing Date, we borrowed $29.0 million under the July 2022 Revolving Credit Facility to repay the outstanding indebtedness under the May 2022 Facility, along with accrued interest, expenses and fees. The loan bears interest at the Adjusted Term SOFR Rate for the interest period in effect plus 1.25%. In connection with the repayment of the May 2022 Facility, the May 2022 Revolving Credit Agreement was terminated on July 29, 2022.
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. Additionally, the July 2022 Credit Agreement contains customary affirmative and negative covenants, including covenants limiting our ability to, among other things, grant liens, incur debt, effect certain mergers, make investments, dispose of assets, enter into certain transactions, including swap agreements and sale and leaseback transactions, pay dividends or distributions on our capital stock, and enter into transactions with affiliates, in each case subject to customary exceptions. As of September 30, 2022, we were in compliance with these covenants. Our obligations under the July 2022 Credit Agreement are secured by a senior security interest in all personal property of the Loan Parties.
The events of default under the July 2022 Credit Agreement include, among others, payment defaults, breaches of covenants, defaults under the related loan documents, material misrepresentations, cross defaults with certain other material indebtedness, bankruptcy and insolvency events, judgment defaults, certain events related to plans subject to the Employee Retirement Income Security Act of 1974, as amended, invalidity of the July 2022 Credit Agreement or the related loan documents and change in control events. The occurrence of an event of default could result in the acceleration of our obligations under the July 2022 Credit Agreement, the requirement to post cash collateral with respect to letters of credit, the termination of the July 2022 Lenders’ commitments and a 2.0% increase in the rate of interest.
As of September 30, 2022 and December 31, 2021, the carrying value of our total long-term debt approximated its fair value as of such date. The fair value of our long-term debt is estimated based on the borrowing rates currently available to us for bank loans with similar terms and maturities.
14
Paycom Software, Inc.
Notes to the Unaudited Consolidated Financial Statements
(tabular dollars and shares in thousands, except per share and per unit amounts)
In December 2017, we entered into a floating-to-fixed interest rate swap agreement to limit the exposure to floating interest rate risk related to the 2017 Term Loans. We do not hold derivative instruments for trading or speculative purposes. The interest rate swap agreement effectively converted a portion of the variable interest rate payments to fixed interest rate payments. We account for our derivatives under ASC Topic 815, “Derivatives and Hedging,” and recognize all derivative instruments in the consolidated balance sheets at fair value as either short-term or long-term assets or liabilities based on their anticipated settlement date. See Note 9, “Fair Value of Financial Instruments”. We have elected not to designate our interest rate swap as a hedge; therefore, changes in the fair value of the derivative instrument are recognized in our consolidated statements of comprehensive income within Other income (expense), net.
The objective of the interest rate swap was to reduce the variability in the forecasted interest payments of the 2017 Term Loans, which was based on a one-month USD LIBOR rate versus a fixed interest rate of 2.54% on a notional value of $35.5 million. Under the terms of the interest rate swap agreement, we received quarterly variable interest payments based on the LIBOR rate and paid interest at a fixed rate. As further discussed in Note 6, on May 4, 2022, we repaid the 2017 Term Loans and terminated the 2017 Term Credit Agreement. In connection with the repayment of the 2017 Term Loans, we borrowed funds under the May 2022 Facility. The interest rate swap remained outstanding to offset the interest rate variability associated with the outstanding borrowings under the May 2022 Facility. The interest rate swap agreement had a maturity date of September 7, 2025. On August 24, 2022, we terminated the interest rate swap by settling the contract, which resulted in a cash receipt of $0.5 million. The realized gain from the settlement of the interest rate swap contract is included in Other income (expense), net in the consolidated statements of comprehensive income.
The tables below present our cash and cash equivalents, the funds held for clients’ cash and cash equivalents as well as the investments that were included within funds held for clients on the consolidated balance sheets:
|
|
September 30, 2022 |
|
|||||||||||||
Type of issue |
|
Amortized cost |
|
|
Gross unrealized gains |
|
|
Gross unrealized losses(1) |
|
|
Fair value |
|
||||
Cash and cash equivalents |
|
$ |
317,163 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
317,163 |
|
Funds held for clients' cash and cash equivalents |
|
|
1,501,276 |
|
|
|
— |
|
|
|
— |
|
|
|
1,501,276 |
|
Available-for-sale securities (2): |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Commercial paper |
|
|
53,478 |
|
|
|
— |
|
|
|
(140 |
) |
|
|
53,338 |
|
Certificates of deposit |
|
|
25,000 |
|
|
|
— |
|
|
|
— |
|
|
|
25,000 |
|
U.S. treasury securities |
|
|
174,242 |
|
|
|
— |
|
|
|
(4,741 |
) |
|
|
169,501 |
|
Total investments |
|
$ |
2,071,159 |
|
|
$ |
— |
|
|
$ |
(4,881 |
) |
|
$ |
2,066,278 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
December 31, 2021 |
|
|||||||||||||
Type of issue |
|
Amortized cost |
|
|
Gross unrealized gains |
|
|
Gross unrealized losses |
|
|
Fair value |
|
||||
Cash and cash equivalents |
|
$ |
277,978 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
277,978 |
|
Funds held for clients' cash and cash equivalents |
|
|
1,534,894 |
|
|
|
— |
|
|
|
— |
|
|
|
1,534,894 |
|
Available-for-sale securities (2): |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Commercial paper |
|
|
311,679 |
|
|
|
— |
|
|
|
— |
|
|
|
311,679 |
|
Certificates of deposit |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Total investments |
|
$ |
2,124,551 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
2,124,551 |
|
15
Paycom Software, Inc.
Notes to the Unaudited Consolidated Financial Statements
(tabular dollars and shares in thousands, except per share and per unit amounts)
We did not make any reclassification adjustments out of accumulated other comprehensive income for realized gains or losses on the sale or maturity of available-for-sale securities for the nine months ended September 30, 2022 or 2021. There were no realized gains or losses on the sale of available-for-sale securities for the nine months ended September 30, 2022 or 2021.
We regularly review the composition of our investment portfolio and did not recognize any credit impairment losses during the nine months ended September 30, 2022 or during the nine months ended September 30, 2021. All of our commercial paper securities held an A-2 rating or better as of September 30, 2022 and the U.S. treasury securities held a rating of AAA as of September 30, 2022.
Expected maturities of available-for-sale securities at September 30, 2022 are as follows:
Expected maturity |
|
Amortized cost |
|
|
Fair value |
|
||
One year or less |
|
$ |
78,478 |
|
|
$ |
78,338 |
|
One year to five years |
|
$ |
174,242 |
|
|
$ |
169,501 |
|
Total available-for-sale securities |
|
$ |
252,720 |
|
|
$ |
247,839 |
|
Our financial instruments consist primarily of cash and cash equivalents, accounts receivable, accounts payable, funds held for clients, client funds obligation and long-term debt. The carrying amount of cash and cash equivalents, accounts receivable, accounts payable and client funds obligation approximates fair value due to the short-term nature of the instruments. See Note 6 for discussion of the fair value of our debt.
As discussed in Note 2, we invest funds held for clients in money market funds, demand deposit accounts, commercial paper with a maturity duration less than three months and certificates of deposit, and classify these items as cash and cash equivalents within the funds held for clients line item in the consolidated balance sheets. Short-term investments in commercial paper and certificates of deposit with an original maturity duration greater than three months are classified as available-for-sale securities, and are also included within the funds held for clients line item. These available-for-sale securities are recognized in the consolidated balance sheets at fair value, with the difference between the amortized cost and fair value of these available-for-sale securities recorded as unrealized net gains (losses) within comprehensive earnings (loss) in our consolidated statements of comprehensive income. See Note 8 for additional information.
We also invest funds held for clients in U.S. treasury securities with initial maturity durations greater than one year. These U.S. treasury securities are classified as available-for-sale securities and included within the funds held for clients line item. The unrealized gains and losses associated with these available-for-sale securities are included within comprehensive earnings (loss) in our consolidated statements of comprehensive income. See Note 8 for additional information.
As discussed in Note 7, during the year ended December 31, 2017, we entered into an interest rate swap. While outstanding, the interest rate swap was measured on a recurring basis based on quoted prices for similar financial instruments and other observable inputs recognized at fair value. We terminated the interest rate swap on August 24, 2022.
The accounting standard for fair value measurements establishes a three-level fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
16
Paycom Software, Inc.
Notes to the Unaudited Consolidated Financial Statements
(tabular dollars and shares in thousands, except per share and per unit amounts)
Included in the following tables are the Company’s major categories of assets and liabilities measured at fair value on a recurring basis as of September 30, 2022 and December 31, 2021:
|
|
September 30, 2022 |
|
|||||||||||||
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Commercial paper |
|
$ |
— |
|
|
$ |
53,338 |
|
|
$ |
— |
|
|
$ |
53,338 |
|
Certificates of deposit |
|
$ |
— |
|
|
$ |
25,000 |
|
|
$ |
— |
|
|
$ |
25,000 |
|
U.S. treasury securities |
|
$ |
— |
|
|
$ |
169,501 |
|
|
$ |
— |
|
|
$ |
169,501 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
December 31, 2021 |
|
|||||||||||||
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Commercial paper |
|
$ |
— |
|
|
$ |
311,679 |
|
|
$ |
— |
|
|
$ |
311,679 |
|
Certificates of deposit |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest rate swap |
|
$ |
— |
|
|
$ |
1,335 |
|
|
$ |
— |
|
|
$ |
1,335 |
|
Employees over the age of 18 who have completed ninety days of service are eligible to participate in our 401(k) plan. We have made a Qualified Automatic Contribution Arrangement (“QACA”) election, whereby the Company matches the contribution of our employees equal to 100% of the first 1% of salary deferrals and 50% of salary deferrals between 2% and 6%, up to a maximum matching contribution of 3.5% of an employee’s salary each plan year. We are allowed to make additional discretionary matching contributions and discretionary profit sharing contributions. Employees are 100% vested in amounts attributable to salary deferrals and rollover contributions. The QACA matching contributions as well as the discretionary matching and profit sharing contributions vest 100% after two years of employment from the date of hire. Matching contributions were $3.3 million and $9.9 million for the three and nine months ended September 30, 2022, respectively. Matching contributions were $2.9 million and $8.8 million for the three and nine months ended September 30, 2021, respectively.
The ESPP has overlapping offering periods, with each offering period lasting approximately 24 months. At the beginning of each offering period, eligible employees may elect to contribute, through payroll deductions, up to 10% of their compensation, subject to an annual per-employee maximum of $25,000. Eligible employees purchase shares of the Company’s common stock at a price equal to 85% of the fair market value of the shares on the exercise date. The maximum number of shares that may be purchased by a participant during each offering period is 2,000 shares, subject to limits specified by the Internal Revenue Service. The shares reserved for purposes of the ESPP are shares we purchase in the open market. The maximum aggregate number of shares of the Company’s common stock that may be purchased by all participants under the ESPP is 2.0 million shares. Eligible employees purchased 40,997 and 31,824 shares of the Company’s common stock under the ESPP during the nine months ended September 30, 2022 and 2021, respectively. Compensation expense related to the ESPP is recognized on a straight-line basis over the requisite service period. Our compensation expense related to the ESPP was $0.7 million and $2.1 million for the three and nine months ended September 30, 2022, respectively. Our compensation expense related to the ESPP was $0.6 million and $2.0 million for the three and nine months ended September 30, 2021, respectively.
Basic earnings per share is based on the weighted average number of shares of common stock outstanding for the period. Diluted earnings per share is computed in a similar manner to basic earnings per share after assuming the issuance of shares of common stock for all potentially dilutive shares of restricted stock whether or not they are vested.
In accordance with ASC Topic 260, “Earnings Per Share,” the two-class method determines earnings for each class of common stock and participating securities according to an earnings allocation formula that adjusts the income available to common stockholders for dividends or dividend equivalents and participation rights in undistributed earnings. Certain unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents are participating securities and, therefore, are included in computing earnings per share pursuant to the two-class method. For the time periods in the table below, we did not have any participating securities.
17
Paycom Software, Inc.
Notes to the Unaudited Consolidated Financial Statements
(tabular dollars and shares in thousands, except per share and per unit amounts)
The following is a reconciliation of net income and the shares of common stock used in the computation of basic and diluted earnings per share:
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income |
|
$ |
52,153 |
|
|
$ |
30,379 |
|
|
$ |
201,438 |
|
|
$ |
147,273 |
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic weighted average shares outstanding |
|
|
57,865 |
|
|
|
57,935 |
|
|
|
57,949 |
|
|
|
57,843 |
|
Dilutive effect of unvested restricted stock |
|
|
168 |
|
|
|
255 |
|
|
|
244 |
|
|
|
349 |
|
Diluted weighted average shares outstanding |
|
|
58,033 |
|
|
|
58,190 |
|
|
|
58,193 |
|
|
|
58,192 |
|
Earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic |
|
$ |
0.90 |
|
|
$ |
0.52 |
|
|
$ |
3.48 |
|
|
$ |
2.55 |
|
Diluted |
|
$ |
0.90 |
|
|
$ |
0.52 |
|
|
$ |
3.46 |
|
|
$ |
2.53 |
|
Restricted Stock Awards
During the nine months ended September 30, 2022, we issued an aggregate of 421,739 restricted shares of common stock under the Paycom Software, Inc. 2014 Long-Term Incentive Plan (as amended, the “LTIP”), consisting of 59,503 shares subject to market-based vesting conditions (“Market-Based Shares”) and 362,236 shares subject to time-based or no vesting conditions (“Time-Based Shares”). Market-Based Shares will vest 50% on the first date, if any, that the arithmetic average of the Company’s volume weighted average price on each of the twenty consecutive trading days immediately preceding such date (the “VWAP Value”) equals or exceeds $484 per share and 50% on the first date, if any, that the Company’s VWAP Value equals or exceeds $559 per share, in each case provided that (i) such date occurs on or before the eighth anniversary of the grant date and (ii) the recipient is employed by, or providing services to, the Company on the applicable vesting date, and subject to the terms and conditions of the LTIP and the applicable restricted stock award agreement. The Time-Based Shares granted to non-executive employees will vest over periods ranging from to four years, provided that the recipient is employed by, or providing services to, the Company on the applicable vesting date, and subject to the terms and conditions of the LTIP and the applicable restricted stock award agreement.
The 362,236 Time-Based Shares mentioned above include an aggregate of 5,210 Time-Based Shares issued to the non-employee members of our Board of Directors in May 2022, all of which will cliff-vest on May 9, 2023, provided that such director is providing services to the Company through the applicable vesting date, and subject to the terms and conditions of the LTIP and the applicable restricted stock award agreement.
The following table summarizes restricted stock awards activity for the nine months ended September 30, 2022:
|
|
Time-Based |
|
|
Market-Based |
|
||||||||||
|
|
Restricted Stock Awards |
|
|
Restricted Stock Awards |
|
||||||||||
|
|
Shares |
|
|
Weighted Average |
|
|
Shares |
|
|
Weighted Average |
|
||||
Unvested shares of restricted stock outstanding at December 31, 2021 |
|
|
369.6 |
|
|
$ |
259.94 |
|
|
|
1,628.3 |
|
|
|
111.87 |
|
Granted |
|
|
362.2 |
|
|
$ |
301.86 |
|
|
|
59.5 |
|
|
|
269.00 |
|
Vested |
|
|
(218.4 |
) |
|
$ |
201.26 |
|
|
|
(0.1 |
) |
|
|
347.62 |
|
Forfeited |
|
|
(48.3 |
) |
|
$ |
315.59 |
|
|
|
(8.1 |
) |
|
|
280.23 |
|
Unvested shares of restricted stock outstanding at September 30, 2022 |
|
|
465.1 |
|
|
$ |
314.37 |
|
|
|
1,679.6 |
|
|
$ |
116.61 |
|
Restricted Stock Units
In February 2022, the Compensation Committee of the Board of Directors authorized the granting of performance-based restricted stock units (“PSUs”) to certain executive officers pursuant to the LTIP (the “2022 PSU Awards”). Each PSU granted under the LTIP represents a notional share of the Company’s common stock. The 2022 PSU Awards represented an aggregate of 51,494 target units that may increase to an aggregate of 128,735 awarded units based upon the Company’s performance over two separate
18
Paycom Software, Inc.
Notes to the Unaudited Consolidated Financial Statements
(tabular dollars and shares in thousands, except per share and per unit amounts)
performance periods: (i) a two-year performance period commencing on January 1, 2022 and ending on December 31, 2023 (the “Two-Year Performance Period”); and (ii) a three-year performance period commencing on January 1, 2022 and ending on December 31, 2024 (the “Three-Year Performance Period”). Up to 25% of the PSUs will be eligible to vest no later than February 29, 2024, for the Two-Year Performance Period, and up to 75% of the PSUs will be eligible to vest no later than March 1, 2025, for the Three-Year Performance Period, provided that the grantee remains employed by or providing services to the Company on the applicable vesting date, and subject to the terms and conditions of the LTIP and the Restricted Stock Unit Award Agreement – Performance Based Vesting (the “PSU Award Agreement”). The number of PSUs that will vest and be converted into shares of common stock will depend on the Company’s relative total stockholder return (“Relative TSR”), expressed as a percentile ranking of the Company’s total stockholder return (“TSR”) as compared to the Company’s peer group set forth in the PSU Award Agreement.
For purposes of the 2022 PSU Awards, TSR is determined by dividing (i) the sum of (A) the average daily volume weighted average price (or “VWAP” as defined in the PSU Award Agreement) of a share of the Company’s common stock or the common stock of a peer company, as applicable, during the final 60 trading day period of the applicable performance period, less (B) the average VWAP of a share of the Company’s common stock or the common stock of a peer company, as applicable, during the 60 trading day period ending on December 31, 2021, plus (C) the sum of all dividends which are paid by the Company (or the member of the peer group) to its stockholders, assuming such dividends are reinvested in the applicable company through the applicable performance period, by (ii) the average VWAP of a share of the Company’s common stock or the common stock of a peer company, as applicable, during the 60 trading day period ending on December 31, 2021. The Company’s peer group includes 35 publicly traded companies, which were reflective of the S&P 500 Software & Services index on the grant date.
On April 14, 2022, the Company announced the departure of Jon Evans from the position of Chief Operating Officer of the Company, effective April 14, 2022. Justin Long, the Company’s Executive Vice President of Operations, assumed Mr. Evans’s responsibilities. In connection with Mr. Evans’s departure, 5,663 of the Time-Based Shares previously granted to Mr. Evans accelerated in vesting. The PSUs granted to Mr. Evans in 2021 and 2022 will remain eligible for vesting based on the Company’s actual performance, but pro-rated for the number of days Mr. Evans was employed during the applicable two-year performance periods and three-year performance periods.
During the nine months ended September 30, 2022, we issued 500 time-based restricted stock units ("Time RSUs") under the LTIP. The Time RSUs will vest over four years, provided that the recipient is employed by, or providing services to, the Company on the applicable vesting date, and subject to the terms and conditions of the LTIP and the applicable Time RSU award agreement.
The following table summarizes restricted stock unit activity for the nine months ended September 30, 2022:
|
|
Time RSUs |
|
|
PSUs |
|
||||||||||
|
|
Units |
|
|
Weighted Average |
|
|
Units |
|
|
Weighted Average |
|
||||
Unvested restricted stock units outstanding at December 31, 2021 |
|
|
— |
|
|
$ |
— |
|
|
|
37.1 |
|
|
$ |
556.50 |
|
Granted |
|
|
0.5 |
|
|
$ |
377.01 |
|
|
|
51.5 |
|
|
$ |
296.07 |
|
Vested |
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
|
$ |
— |
|
Forfeited |
|
|
— |
|
|
$ |
— |
|
|
|
(10.8 |
) |
|
$ |
376.69 |
|
Unvested restricted stock units outstanding at September 30, 2022 (1) |
|
|
0.5 |
|
|
$ |
377.01 |
|
|
|
77.8 |
|
|
$ |
409.13 |
|
For the three and nine months ended September 30, 2022, our total stock-based compensation expense was $24.5 million and $70.8 million, respectively. For the three and nine months ended September 30, 2021, our total stock-based compensation expense was $29.0 million and $76.4 million, respectively.
The following table presents the unrecognized compensation cost and the related weighted average recognition period associated with unvested restricted stock awards and unvested restricted stock units awards as of September 30, 2022.
|
|
Restricted Stock |
|
|
Restricted Stock |
|
||
|
|
Awards |
|
|
Units |
|
||
Unrecognized compensation cost |
|
$ |
235,647 |
|
|
$ |
16,191 |
|
Weighted average period for recognition (years) |
|
|
3.2 |
|
|
|
1.6 |
|
19
Paycom Software, Inc.
Notes to the Unaudited Consolidated Financial Statements
(tabular dollars and shares in thousands, except per share and per unit amounts)
We capitalized stock-based compensation costs related to software developed for internal use of $2.3 million and $6.5 million for the three and nine months ended September 30, 2022, respectively. We capitalized stock-based compensation costs related to software developed for internal use of $1.7 million and $5.1 million for the three and nine months ended September 30, 2021, respectively.
We are involved in various legal proceedings in the ordinary course of business. Although we cannot predict the outcome of these proceedings, 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 and cash flows.
The Company’s effective income tax rate was 26.9% and 20.8% for the nine months ended September 30, 2022 and 2021, respectively. The increase in effective tax rate for the nine months ended September 30, 2022 is primarily related to a decrease of excess tax benefits from stock-based compensation.
On August 16, 2022, President Biden signed into law the Inflation Reduction Act of 2022, which, among other things, implements a 15% minimum tax on book income of certain large corporations, a 1% excise tax on net stock repurchases and several tax incentives to promote clean energy. Based on our current analysis of the provisions, we do not believe this legislation will have a material impact on our consolidated financial statements.
Restricted Stock Awards
On October 25, 2022, we issued an aggregate of 14,998 restricted shares of common stock to certain non-executive employees under the LTIP, consisting of Time-Based Shares that will vest in annual tranches over periods ranging from three to four years, provided that the recipient is employed by, or providing services to, the Company on the applicable vesting date, and subject to the terms and conditions of the LTIP and the applicable restricted stock award agreement.
20
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to provide a reader of our financial statements with management’s perspective on our financial condition, results of operations, liquidity, and certain other factors that may affect our future results. The following discussion and analysis should be read in conjunction with (i) the accompanying unaudited consolidated financial statements and notes thereto for the three and nine months ended September 30, 2022, (ii) the audited consolidated financial statements and notes thereto for the year ended December 31, 2021 included in our Annual Report on Form 10-K (the “Form 10-K”) filed with the Securities and Exchange Commission (the “SEC”) on February 17, 2022 and (iii) the discussion under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Form 10-K. Except for certain information as of December 31, 2021, all amounts herein are unaudited. Unless we state otherwise or the context otherwise requires, the terms “we,” “us,” “our” and the “Company” refer to Paycom Software, Inc. and its consolidated subsidiaries. All amounts presented in tables, other than per share amounts, are in thousands unless otherwise noted.
Forward-Looking Statements
The following discussion contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are any statements that look to future events and include, but are not limited to, statements regarding our business strategy; anticipated future operating results and operating expenses, cash flows, capital resources, dividends and liquidity; trends, opportunities and risks affecting our business, industry and financial results; future expansion or growth plans and potential for future growth; our ability to attract new clients to purchase our solution; our ability to retain clients and induce them to purchase additional applications; our ability to accurately forecast future revenues and appropriately plan our expenses; market acceptance of our solution and applications; our expectations regarding future revenues generated by certain applications; our ability to attract and retain qualified employees and key personnel; future regulatory, judicial and legislative changes; how certain factors affecting our performance correlate to improvement or deterioration in the labor market; our plan to open additional sales offices and our ability to effectively execute such plan; the sufficiency of our existing cash and cash equivalents to meet our working capital and capital expenditure needs over the next 12 months; our plans regarding our capital expenditures and investment activity as our business grows, including with respect to research and development and the expansion of our corporate headquarters and other facilities; our plans to repurchase shares of our common stock through a stock repurchase plan; our expected income tax rate for future periods; and the impact of the coronavirus (COVID-19) pandemic on our business, results of operations, cash flows, financial condition and liquidity. In addition, forward-looking statements also consist of statements involving trend analyses and statements including such words as “anticipate,” “believe,” “could,” “estimate,” “expect,” “will,” “intend,” “may,” “might,” “plan,” “potential,” “should,” “would,” and similar expressions or the negative of such terms or other comparable terminology.
Forward-looking statements are neither historical facts nor assurances of future performance, and are based only on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Therefore, you should not rely on any of these forward-looking statements. Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include, among others, the following:
21
Forward-looking statements are based only on information currently available to us and speak only as of the date of this Form 10-Q and are subject to business and economic risks. We do not undertake any obligation to update or revise the forward-looking statements to reflect events that occur or circumstances that exist after the date on which such statements were made, except to the extent required by law.
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. Our solution requires virtually no customization and is based on a core system of record maintained in a single database for all HCM functions, including talent acquisition, time and labor management, payroll, talent management and human resources management applications. Our user-friendly software allows for easy adoption of our solution by employees, enabling self-management of their HCM activities in the cloud, which reduces the administrative burden on employers and increases employee productivity.
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. Our billing period varies by client based on when each client pays its employees, which may be weekly, bi-weekly, semi-monthly or monthly. We serve a diverse client base in terms of size and industry. None of our clients constituted more than one-half of one percent of our revenues for the nine months ended September 30, 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.
Our continued growth depends on attracting new clients through further penetration of our existing markets and geographic expansion into new markets, targeting a high degree of client employee usage across our solution, and introducing new applications to our existing client base. 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. In January 2022, we added new sales teams in Las Vegas, Jacksonville, New England and South Jersey, bringing our total to 55 sales teams (including one team consisting of CRRs and inside sales representatives) located in 28 states. We plan to open additional sales offices in the future and leverage virtual sales meetings to further expand our market presence.
Our principal marketing efforts include national and local advertising campaigns, email campaigns, social and digital media campaigns, search engine marketing methods, sponsorships, tradeshows, print advertising and outbound marketing including personalized direct mail campaigns. In addition, we generate leads and build recognition of our brand and thought leadership with relevant and informative content, such as white papers, blogs, podcast episodes and webinars.
Throughout our history, we have built strong relationships with our clients. As the HCM needs of our clients evolve, we believe that we are well-positioned to expand the HCM spending of our clients and we believe this opportunity is significant. To be successful, we must continue to demonstrate the operational and economic benefits of our solution, as well as effectively hire, train, motivate and retain qualified personnel.
22
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. 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. Client adoption of new applications and client employee usage of both new and existing applications have been significant factors in our revenue growth, and we expect the continuation of this trajectory will depend, in part, on the introduction of applications to our existing client base that encourage and promote more employee usage. For example, in 2021, we launched our industry-first Beti technology, which further automates and streamlines the payroll process by empowering employees to do their own payroll. Moreover, in order to increase revenues and continue to improve our operating results, we must also attract new clients. 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 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.
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. We believe larger employers represent a substantial opportunity to increase the number of potential clients and to increase our revenues per client, with limited incremental cost to us. Because we charge our clients on a per employee basis for certain services we provide, any increase or decrease in the number of employees of our clients will have a positive or negative impact, respectively, on our results of operations. As discussed in more detail below, client headcount fluctuations are particularly relevant in light of the ongoing COVID-19 pandemic. Generally, we expect that changes in certain factors affecting our performance will correlate with improvement or deterioration in the labor market.
We collect funds from clients in advance of either the applicable due date for payroll tax submissions or the applicable disbursement date for employee payment services. Those collections from clients are typically disbursed from one to 30 days after receipt, with some funds being held for up to 120 days. We typically invest funds held for clients in money market funds, demand deposit accounts, U.S. treasury securities, commercial paper and certificates of deposit until they are paid to the applicable tax or regulatory agencies or to client employees. 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.
Growing our business has resulted in, and will continue to result in, substantial investments in sales professionals, operating expenses, system development and programming costs and general and administrative expenses, which have increased and will continue to increase our expenses. Specifically, our revenue growth and geographic expansion drive increases in our employee headcount, which in turn precipitates increases in (i) salaries and benefits, (ii) stock-based compensation expense and (iii) facility costs related to the expansion of our corporate headquarters and operations facilities and additional sales office leases.
We believe the challenges of managing the ever-changing complexity of payroll and human resources will continue to drive companies to turn to outsourced providers for help with their HCM needs. The HCM industry historically has been driven, in part, by legislation and regulatory action, including COBRA, changes to the minimum wage laws or overtime rules, and legislation from federal, state or municipal taxation authorities.
Our revenues are seasonal in nature and generally we expect our first and fourth quarter recurring revenues to be higher than other quarters during the year. Recurring revenues include revenues relating to the annual processing of payroll tax filing forms and ACA form filing requirements, such as Form W-2, Form 1099, and Form 1095 and revenues from processing unscheduled payroll runs (such as bonuses) for our clients. As payroll tax forms are typically processed in the first quarter of the year, first quarter recurring revenues and margins are positively impacted. In addition, unscheduled payroll runs at the end of the year often result in increased recurring revenues in the fourth quarter. These seasonal fluctuations in revenues can also have an impact on gross profits. Historical results impacted by these seasonal trends should not be considered a reliable indicator of our future results of operations.
For the three months ended September 30, 2022 and 2021, our total gross margins were approximately 84% and 83%, respectively. For the nine months ended September 30, 2022 and 2021, our total gross margins were approximately 85%. Although our gross margins may fluctuate from quarter to quarter due to seasonality and hiring trends, we expect that our gross margins will remain relatively consistent in future periods.
23
Impact of the COVID-19 Pandemic
The COVID-19 pandemic has created uncertainty and impacted the operations of many of our clients and client prospects. Nonetheless, demand for our solution remains high and, despite the economic challenges brought on by the COVID-19 pandemic, we remain confident in the overall health of our business, the strength of our product offerings, and our ability to continue to execute on our strategy.
We are monitoring developments related to the pandemic. We may take further actions that alter our business operations as may be required by federal, state or local authorities or that we determine are in the best interests of our employees and clients. We are unable to estimate the full impact that the COVID-19 pandemic could have on our business and results of operations in the future due to numerous uncertainties, including the severity of the disease, the duration of the outbreak, the emergence of different COVID-19 variants, actions that may be taken by governmental authorities, the impact to the business of our clients and other factors identified in Part I, Item 1A “Risk Factors” in our Form 10-K that was filed with the SEC on February 17, 2022.
Results of Operations
The following table sets forth certain consolidated statements of income data and such data as a percentage of total revenues for the periods presented:
|
|
Three Months Ended September 30, |
|
|
|
|
Nine Months Ended September 30, |
|
|
|||||||||||||||||||||||||||
|
|
2022 |
|
|
2021 |
|
|
% Change |
|
2022 |
|
|
2021 |
|
|
% Change |
||||||||||||||||||||
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Recurring |
|
$ |
328,150 |
|
|
|
98.2 |
% |
|
$ |
251,306 |
|
|
|
98.1 |
% |
|
30.6% |
|
$ |
987,848 |
|
|
|
98.3 |
% |
|
$ |
756,665 |
|
|
|
98.2 |
% |
|
30.6% |
Implementation and other |
|
|
6,017 |
|
|
|
1.8 |
% |
|
|
4,888 |
|
|
|
1.9 |
% |
|
23.1% |
|
|
16,762 |
|
|
|
1.7 |
% |
|
|
13,873 |
|
|
|
1.8 |
% |
|
20.8% |
Total revenues |
|
|
334,167 |
|
|
|
100.0 |
% |
|
|
256,194 |
|
|
|
100.0 |
% |
|
30.4% |
|
|
1,004,610 |
|
|
|
100.0 |
% |
|
|
770,538 |
|
|
|
100.0 |
% |
|
30.4% |
Cost of revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Operating expenses |
|
|
44,169 |
|
|
|
13.2 |
% |
|
|
34,766 |
|
|
|
13.6 |
% |
|
27.0% |
|
|
122,265 |
|
|
|
12.2 |
% |
|
|
92,612 |
|
|
|
12.0 |
% |
|
32.0% |
Depreciation and amortization |
|
|
10,935 |
|
|
|
3.3 |
% |
|
|
7,914 |
|
|
|
3.1 |
% |
|
38.2% |
|
|
31,405 |
|
|
|
3.1 |
% |
|
|
22,751 |
|
|
|
3.0 |
% |
|
38.0% |
Total cost of revenues |
|
|
55,104 |
|
|
|
16.5 |
% |
|
|
42,680 |
|
|
|
16.7 |
% |
|
29.1% |
|
|
153,670 |
|
|
|
15.3 |
% |
|
|
115,363 |
|
|
|
15.0 |
% |
|
33.2% |
Administrative expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Sales and marketing |
|
|
91,114 |
|
|
|
27.3 |
% |
|
|
69,745 |
|
|
|
27.2 |
% |
|
30.6% |
|
|
253,834 |
|
|
|
25.3 |
% |
|
|
200,485 |
|
|
|
26.0 |
% |
|
26.6% |
Research and development |
|
|
40,366 |
|
|
|
12.1 |
% |
|
|
31,077 |
|
|
|
12.1 |
% |
|
29.9% |
|
|
108,774 |
|
|
|
10.8 |
% |
|
|
84,012 |
|
|
|
10.9 |
% |
|
29.5% |
General and administrative |
|
|
60,693 |
|
|
|
18.1 |
% |
|
|
59,980 |
|
|
|
23.4 |
% |
|
1.2% |
|
|
179,109 |
|
|
|
17.8 |
% |
|
|
160,234 |
|
|
|
20.8 |
% |
|
11.8% |
Depreciation and amortization |
|
|
12,625 |
|
|
|
3.8 |
% |
|
|
9,407 |
|
|
|
3.7 |
% |
|
34.2% |
|
|
36,378 |
|
|
|
3.6 |
% |
|
|
25,503 |
|
|
|
3.3 |
% |
|
42.6% |
Total administrative expenses |
|
|
204,798 |
|
|
|
61.3 |
% |
|
|
170,209 |
|
|
|
66.4 |
% |
|
20.3% |
|
|
578,095 |
|
|
|
57.5 |
% |
|
|
470,234 |
|
|
|
61.0 |
% |
|
22.9% |
Total operating expenses |
|
|
259,902 |
|
|
|
77.8 |
% |
|
|
212,889 |
|
|
|
83.1 |
% |
|
22.1% |
|
|
731,765 |
|
|
|
72.8 |
% |
|
|
585,597 |
|
|
|
76.0 |
% |
|
25.0% |
Operating income |
|
|
74,265 |
|
|
|
22.2 |
% |
|
|
43,305 |
|
|
|
16.9 |
% |
|
71.5% |
|
|
272,845 |
|
|
|
27.2 |
% |
|
|
184,941 |
|
|
|
24.0 |
% |
|
47.5% |
Interest expense |
|
|
(1,018 |
) |
|
|
-0.3 |
% |
|
|
— |
|
|
|
0.0 |
% |
|
-100.0% |
|
|
(1,587 |
) |
|
|
-0.2 |
% |
|
|
— |
|
|
|
0.0 |
% |
|
-100.0% |
Other income (expense), net |
|
|
2,041 |
|
|
|
0.6 |
% |
|
|
244 |
|
|
|
0.1 |
% |
|
736.5% |
|
|
4,331 |
|
|
|
0.4 |
% |
|
|
1,019 |
|
|
|
0.1 |
% |
|
325.0% |
Income before income taxes |
|
|
75,288 |
|
|
|
22.5 |
% |
|
|
43,549 |
|
|
|
17.0 |
% |
|
72.9% |
|
|
275,589 |
|
|
|
27.4 |
% |
|
|
185,960 |
|
|
|
24.1 |
% |
|
48.2% |
Provision for income taxes |
|
|
23,135 |
|
|
|
6.9 |
% |
|
|
13,170 |
|
|
|
5.1 |
% |
|
75.7% |
|
|
74,151 |
|
|
|
7.3 |
% |
|
|
38,687 |
|
|
|
5.0 |
% |
|
91.7% |
Net income |
|
$ |
52,153 |
|
|
|
15.6 |
% |
|
$ |
30,379 |
|
|
|
11.9 |
% |
|
71.7% |
|
$ |
201,438 |
|
|
|
20.1 |
% |
|
$ |
147,273 |
|
|
|
19.1 |
% |
|
36.8% |
Revenues
The increase in total revenues for the three and nine months ended September 30, 2022 compared to the same periods in 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. In addition, the performance of our tax forms filing business in the first quarter contributed to the increase in total revenues for the nine months ended September 30, 2022 as compared to the same period in 2021. The COVID-19 pandemic has resulted in, and may continue to result in, headcount fluctuations across our client base. Additionally, rising interest rates and a higher average funds held for clients balance during the three and nine months ended September 30, 2022 as compared to the same periods in 2021, resulted in increased interest earned on funds held for clients, which had a positive impact on recurring revenue.
The increase in implementation and other revenues for the three and nine months ended September 30, 2022 from the same periods in 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.
24
Expenses
Cost of Revenues
During the three months ended September 30, 2022, operating expenses increased from the comparable prior year period by $9.4 million due to an $8.6 million increase in employee-related expenses primarily attributable to growth in the number of operating personnel and a $0.7 million increase in automated clearing house fees in connection with the increase in revenues. Depreciation and amortization expense increased $3.0 million from the comparable prior year period, primarily due to the development of additional technology and purchases of other fixed assets.
During the nine months ended September 30, 2022, operating expenses increased from the comparable prior year period by $29.7 million due to a $24.6 million increase in employee-related expenses primarily attributable to growth in the number of operating personnel, a $2.9 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. Depreciation and amortization expense increased $8.7 million from the comparable prior year period, primarily due to the development of additional technology and purchases of other fixed assets.
Administrative Expenses
Sales and Marketing
During the three months ended September 30, 2022, sales and marketing expenses increased from the comparable prior year period by $21.4 million due to a $16.6 million increase in employee-related expenses, including commissions and bonuses, and a $4.8 million increase in marketing and advertising expense attributable to increased spending across most components of our marketing program.
During the nine months ended September 30, 2022, sales and marketing expenses increased from the comparable prior year period by $53.3 million due to a $41.1 million increase in employee-related expenses, including commissions and bonuses, and a $12.2 million increase in marketing and advertising expense attributable to increased spending across most components of our marketing program. Based on positive results from our advertising campaigns, we plan to continue to make significant investments in our marketing program and may adjust spending levels in future periods as we see opportunities for returns on our investments.
Research and Development
During the three and nine months ended September 30, 2022, research and development expenses increased from the comparable prior year periods due to increases in employee-related expenses of $9.3 million and $24.8 million, respectively.
As we continue the ongoing development of our platform and product offerings, we generally expect research and development expenses (exclusive of stock-based compensation) to continue to increase, particularly as we hire more personnel to support our growth. While we expect this trend to continue on an absolute dollar basis and as a percentage of total revenues, we also anticipate the rate of increase to decline over time as we leverage our growth and realize additional economies of scale. As is customary for our business, we also expect fluctuations in research and development expense as a percentage of revenue on a quarter-to-quarter basis due to seasonal revenue trends, the introduction of new products, the amount and timing of research and development costs that may be capitalized and the timing of onboarding new hires and restricted stock vesting events.
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. The table below sets forth the amounts of capitalized and expensed research and development costs for the three and nine months ended September 30, 2022 and 2021:
|
|
Three Months Ended September 30, |
|
|
|
|
Nine Months Ended September 30, |
|
|
|||||||||||
|
|
2022 |
|
|
2021 |
|
|
% Change |
|
2022 |
|
|
2021 |
|
|
% Change |
||||
Capitalized portion of research and development |
|
$ |
16,995 |
|
|
$ |
13,157 |
|
|
29% |
|
$ |
48,835 |
|
|
$ |
39,160 |
|
|
25% |
Expensed portion of research and development |
|
|
40,366 |
|
|
|
31,077 |
|
|
30% |
|
|
108,774 |
|
|
|
84,012 |
|
|
29% |
Total research and development costs |
|
$ |
57,361 |
|
|
$ |
44,234 |
|
|
30% |
|
$ |
157,609 |
|
|
$ |
123,172 |
|
|
28% |
General and Administrative
During the three months ended September 30, 2022, general and administrative expenses increased $0.7 million from the comparable prior year period due to a $1.1 million increase in accounting and legal expenses, which was partially offset by a $0.4 million decrease in employee-related expenses.
25
During the nine months ended September 30, 2022, general and administrative expenses increased $18.9 million from the comparable prior year period due to a $19.7 million increase in employee-related expenses, which was partially offset by a $0.8 million decrease in accounting and legal expenses.
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:
|
|
Three Months Ended September 30, |
|
|
|
|
Nine Months Ended September 30, |
|
|
|||||||||||
|
|
2022 |
|
|
2021 |
|
|
% Change |
|
2022 |
|
|
2021 |
|
|
% Change |
||||
Non-cash stock-based compensation expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Operating expenses |
|
$ |
1,396 |
|
|
$ |
1,256 |
|
|
11% |
|
$ |
3,725 |
|
|
$ |
3,381 |
|
|
10% |
Sales and marketing |
|
|
5,280 |
|
|
|
3,417 |
|
|
55% |
|
|
13,186 |
|
|
|
10,567 |
|
|
25% |
Research and development |
|
|
3,039 |
|
|
|
1,827 |
|
|
66% |
|
|
8,115 |
|
|
|
5,394 |
|
|
50% |
General and administrative |
|
|
14,777 |
|
|
|
22,491 |
|
|
-34% |
|
|
45,789 |
|
|
|
57,022 |
|
|
-20% |
Total non-cash stock-based compensation expense |
|
$ |
24,492 |
|
|
$ |
28,991 |
|
|
-16% |
|
$ |
70,815 |
|
|
$ |
76,364 |
|
|
-7% |
Depreciation and Amortization
During the three and nine months ended September 30, 2022, depreciation and amortization expense increased from the comparable prior year periods primarily due to the development of additional technology and purchases of other related fixed assets.
Interest Expense
The increase in interest expense for the three and nine months ended September 30, 2022, as compared to the comparable prior year periods, is 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.
Other Income (Expense), net
The change in other income (expense), net for the three and nine months ended September 30, 2022 was primarily due to the realized gain which resulted from the settlement of our interest rate swap agreement.
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 26.9% and 20.8% for the nine months ended September 30, 2022 and 2021, respectively. The increase in the effective income tax rate for the nine months ended September 30, 2022 is primarily related to a decrease of excess tax benefits from stock-based compensation.
Liquidity and Capital Resources
Our principal sources of capital and liquidity are our operating cash flow and cash and cash equivalents. Our cash and cash equivalents consist primarily of demand deposit accounts, money market funds and certificates of deposit. Additionally, we maintain a $650.0 million senior secured revolving credit facility (the “July 2022 Revolving Credit Facility”), and a $750.0 million senior secured delayed draw term loan facility (the “July 2022 Term Loan Facility”), which can be accessed as needed to supplement our operating cash flow and cash balances. As of September 30, 2022, we have $29.0 million of outstanding borrowings under the July 2022 Revolving Credit Facility and no outstanding borrowings under the July 2022 Term Loan Facility.
We have historically funded our operations from cash flows generated from operations, cash from the sale of equity securities and debt financing. Although we have funded most of the costs for construction projects at our corporate headquarters and other facilities from available cash, we have incurred indebtedness for a portion of these costs. We are funding the current building expansion at our Oklahoma City headquarters from available cash. Further, all purchases under our stock repurchase plans were paid for from available cash. 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. 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 December 2017, we entered into a floating-to-fixed interest rate swap agreement (the "Interest Rate Swap Agreement") to limit our exposure to interest rate risk related to the term loans used to finance construction projects at our corporate headquarters (the "2017 Term Loans"). The Interest Rate Swap Agreement, which had a maturity date of September 7, 2025, provided that we received quarterly variable interest payments based on the LIBOR rate and paid interest at a fixed rate. We have
26
elected not to designate this interest rate swap as a hedge and, as such, changes in the fair value of the derivative instrument are recognized in our consolidated statements of comprehensive income. On August 24, 2022, we terminated the Interest Rate Swap Agreement by settling the contract. The settlement of the interest rate swap contract resulted in a cash receipt of $0.5 million. The realized gain from the settlement of the interest rate swap is included in Other income (expense), net in the consolidated statements of comprehensive income.
May 2022 Revolving Credit Agreement. On May 4, 2022, we entered into a credit agreement (the “May 2022 Revolving Credit Agreement”) with Bank of America, N.A., as a lender, swingline lender and letters of credit issuer, the lenders from time to time party thereto, and Bank of America, N.A., as the administrative agent, which provided for a senior secured revolving credit facility in the initial aggregate principal amount of up to $250.0 million and the ability to request an incremental facility of up to an additional $100.0 million, subject to obtaining additional lender commitments and certain approvals and satisfying certain other conditions (the “May 2022 Facility”). The May 2022 Facility included a $25.0 million sublimit for swingline loans and a $2.5 million sublimit for letters of credit. On May 4, 2022, we borrowed $29.0 million under the May 2022 Facility to repay the 2017 Term Loans, along with accrued interest, expenses and fees. On June 7, 2022, the aggregate commitments under the May 2022 Revolving Credit Agreement were increased from $250.0 million to $350.0 million. The May 2022 Facility was scheduled to mature on May 4, 2027.
As discussed below, on July 29, 2022, we entered into the July 2022 Credit Agreement (as defined below) and borrowed $29.0 million to repay the outstanding indebtedness under the May 2022 Facility along with accrued interest, expenses and fees. In connection with the repayment, the May 2022 Revolving Credit Agreement was terminated on July 29, 2022.
July 2022 Credit Agreement. 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.
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 July 2022 Credit Agreement includes a $25.0 million sublimit for swingline loans and a $6.5 million sublimit for letters of credit. The July 2022 Credit Agreement also provides for the July 2022 Term Loan Facility in the aggregate amount of up to $750.0 million. All loans under the July 2022 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”). ABR is calculated as the highest of (i) the rate of interest last quoted by The Wall Street Journal in the United States as the prime rate in effect, (ii) the federal funds rate plus 0.5% and (iii) the Adjusted Term SOFR Rate for a one-month interest period plus 1.00%; provided that, if the ABR as determined pursuant to the foregoing would be less than 1.00%, such rate shall be deemed to be 1.00%. The applicable margin for ABR Loans is (i) 0.25% if the Company’s consolidated leverage ratio is less than 1.0 to 1.0; (ii) 0.50% 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) 0.75% 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) 1.00% if the Company’s consolidated leverage ratio is greater than or equal to 3.0 to 1.0. The applicable margin for SOFR Rate Loans is (i) 1.25% if the Company’s consolidated leverage ratio is less than 1.0 to 1.0; (ii) 1.5% 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) 1.75% 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) 2.00% 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 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 also required to pay customary letter of credit fees upon drawing any letter of credit.
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.
We may make up to ten draws under the July 2022 Term Loan Facility at any time during the period from and after the July 2022 Facility Closing Date through twelve months after the July 2022 Facility Closing Date. Loans under the July 2022 Term Loan Facility will amortize in equal quarterly installments commencing with the first full fiscal quarter after the earlier of (x) the date on
27
which the July 2022 Term Loan Facility has been fully drawn and (y) the expiration of the draw period, in an aggregate annual amount equal to 7.5% in year one (if applicable) and year two, and 10% thereafter.
On the July 2022 Facility Closing Date, we borrowed $29.0 million under the July 2022 Revolving Credit Facility to repay the outstanding indebtedness under the May 2022 Facility, along with accrued interest, expenses and fees. The loan bears interest at the Adjusted Term SOFR Rate for the interest period in effect plus 1.25%. In connection with the repayment of the May 2022 Facility, the May 2022 Revolving Credit Agreement was terminated on July 29, 2022.
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. Since the initial authorization of the stock repurchase plan, our Board of Directors has amended and extended and authorized new stock repurchase plans from time to time. Most recently, in August 2022, our Board of Directors authorized the repurchase of up to $1.1 billion of our common stock. As of September 30, 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. 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 restricted stock and other corporate considerations. The current stock repurchase plan will expire on August 15, 2024.
During the nine months ended September 30, 2022, we repurchased an aggregate of 364,200 shares of our common stock at an average cost of $273.67 per share, including 16,888 shares withheld to satisfy tax withholding obligations for certain employees upon the vesting of restricted stock. Our payment of the taxes on behalf of those employees resulted in an aggregate cash expenditure of $5.0 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.
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. Failure to generate sufficient revenues and related cash flows could have a material adverse effect on our ability to meet our liquidity needs and achieve our business objectives.
As our business grows, we expect our capital expenditures and our investment activity to continue to increase. We are currently focused on the expansion of our corporate headquarters. Capital expenditures related to this expansion began in the fourth quarter of 2021. We estimate that the total cost of the project will be between $60 million and $70 million and we expect construction will take approximately two years to complete. In addition, we purchased the naming rights to the downtown Oklahoma City arena that is home to the Oklahoma City Thunder National Basketball Association franchise. Under the terms of the naming rights agreement, we committed to make payments escalating annually from $4.0 million in 2021 to $6.1 million in 2035. The payments are due in the fourth quarter of each year. Upon the conclusion of the initial term, the agreement may be extended upon the mutual agreement of both parties for an additional five-year period. Depending on certain growth opportunities, we may choose to accelerate investments in sales and marketing, acquisitions, technology and services. Actual future capital requirements will depend on many factors, including our future revenues, cash from operating activities and the level of expenditures in all areas of our business.
As part of our payroll and payroll tax filing services, we collect funds from our clients for federal, state and local employment taxes, which we remit to the appropriate tax agencies. We invest these funds in money market funds, demand deposit accounts, commercial paper, U.S. treasury securities and certificates of deposit from which we earn interest income during the period between their receipt and disbursement.
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 cash flows from financing activities are also affected by the extent to which we use available cash to purchase shares of common stock under our stock repurchase plan as well as restricted stock vesting events that result in net share settlements and the Company paying withholding taxes on behalf of certain employees.
28
The following table summarizes the consolidated statements of cash flows for the nine months ended September 30, 2022 and 2021:
|
|
Nine Months Ended September 30, |
|
|
||||||
|
|
2022 |
|
|
2021 |
|
|
% Change |
||
Net cash provided by (used in): |
|
|
|
|
|
|
|
|
||
Operating activities |
|
$ |
236,647 |
|
|
$ |
229,637 |
|
|
3% |
Investing activities |
|
|
(32,028 |
) |
|
|
(63,978 |
) |
|
50% |
Financing activities |
|
|
(198,871 |
) |
|
|
1,283,999 |
|
|
-115% |
Change in cash, cash equivalents, restricted cash and restricted cash equivalents |
|
$ |
5,748 |
|
|
$ |
1,449,658 |
|
|
-100% |
Operating Activities
Cash provided by operating activities for the nine months ended September 30, 2022 primarily consisted of payments received from our clients and interest earned on funds held for clients. Cash used in operating activities primarily consisted of personnel-related expenditures to support the growth and infrastructure of our business. These payments included costs of operations, advertising and other sales and marketing efforts, IT infrastructure development, product research and development and security and administrative costs. Compared to the nine months ended September 30, 2021, our operating cash flows for the nine months ended September 30, 2022 were positively impacted by the growth of our business.
Investing Activities
Cash flows used in investing activities for the nine months ended September 30, 2022 decreased from the comparable prior year period due to a $133.7 million increase in proceeds from investments from funds held for clients and a $1.5 million decrease in purchases of intangible assets, which were partially offset by a $98.0 million increase in purchases of investments from funds held for clients and a $5.3 million increase in purchases of property and equipment.
Financing Activities
Cash flows used in financing activities for the nine months ended September 30, 2022 increased from the comparable prior year period primarily due to the impact of a $1,439.0 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 $94.7 million increase in common stock repurchases, a $28.0 million increase in payments on long-term debt, and a $6.4 million increase in payment of debt issuance costs. The increase in cash flows used in financing activities was partially offset by a $56.1 million decrease in withholding taxes paid related to net share settlements and $29.0 million in proceeds from the issuance of debt.
Contractual Obligations
Our principal commitments primarily consist of long-term debt, leases for office space and the naming rights agreement. As discussed in “Note 6. Long-Term Debt, Net” and elsewhere in this Form 10-Q, on May 4, 2022, we entered into the May 2022 Revolving Credit Agreement, repaid the 2017 Term Loans and terminated the 2017 Term Credit Agreement. On July 29, 2022, we entered into the July 2022 Credit Agreement and terminated the May 2022 Revolving Credit Agreement. Outside of the changes related to the May 2022 Revolving Credit Agreement, repayment of the 2017 Term Loans, termination of the 2017 Term Credit Agreement and changes related to the July 2022 Credit Agreement, there have been no material changes to our contractual obligations disclosed in the contractual obligations section of Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Form 10-K that was filed with the SEC on February 17, 2022. 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 12. Commitments and Contingencies” in the Form 10-K and “Note 5. Goodwill and Intangible Assets, Net”, “Note 6. Long-Term Debt, Net”, and “Note 13. Commitments and Contingencies” in the notes to our unaudited consolidated financial statements included elsewhere in this Form 10-Q.
29
Critical Accounting Policies and Estimates
Our consolidated financial statements and accompanying notes have been prepared in accordance with generally accepted accounting principles in the United States of America (“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. On an ongoing basis, we evaluate our estimates and assumptions to ensure that management believes them to be reasonable under the then-current facts and circumstances. Actual amounts and results may materially differ from these estimates made by management under different assumptions and conditions.
Certain accounting policies that require significant management estimates, and are deemed critical to our results of operations or financial position, are discussed in the critical accounting policies and estimates section of Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Form 10-K. There have been no material changes to the critical accounting policies disclosed in the Form 10-K.
Adoption of Accounting Pronouncements
Discussion of our recently adopted accounting pronouncements can be found in Note 2 in this Form 10-Q.
30
Non-GAAP Financial Measures
Management uses adjusted EBITDA and non-GAAP net income as supplemental measures to review and assess the performance of our core business operations and for planning purposes. We define (i) adjusted EBITDA as net income plus interest expense, taxes, depreciation and amortization, non-cash stock-based compensation expense, certain transaction expenses that are not core to our operations (if any) and the change in fair value of our interest rate swap 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. Adjusted EBITDA and non-GAAP net income are metrics that provide investors with greater transparency to the information used by management in its financial and operational decision-making. We believe these metrics are useful to investors because they facilitate comparisons of our core business operations across periods on a consistent basis, as well as comparisons with the results of peer companies, many of which use similar non-GAAP financial measures to supplement results under U.S. GAAP. In addition, adjusted EBITDA is a measure that provides useful information to management about the amount of cash available for reinvestment in our business, repurchasing common stock and other purposes. Management believes that the non-GAAP measures presented in this Form 10-Q, when viewed in combination with our results prepared in accordance with U.S. GAAP, provide a more complete understanding of the factors and trends affecting our business and performance.
Adjusted EBITDA and non-GAAP net income are not measures of financial performance under U.S. GAAP, and should not be considered a substitute for net income, which we consider to be the most directly comparable U.S. GAAP measure. Adjusted EBITDA and non-GAAP net income have limitations as analytical tools, and when assessing our operating performance, you should not consider adjusted EBITDA or non-GAAP net income in isolation, or as a substitute for net income or other consolidated statements of comprehensive income data prepared in accordance with U.S. GAAP. 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.
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:
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Net income to adjusted EBITDA: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income |
|
$ |
52,153 |
|
|
$ |
30,379 |
|
|
$ |
201,438 |
|
|
$ |
147,273 |
|
Interest expense |
|
|
1,018 |
|
|
|
— |
|
|
|
1,587 |
|
|
|
— |
|
Provision for income taxes |
|
|
23,135 |
|
|
|
13,170 |
|
|
|
74,151 |
|
|
|
38,687 |
|
Depreciation and amortization |
|
|
23,560 |
|
|
|
17,321 |
|
|
|
67,783 |
|
|
|
48,254 |
|
EBITDA |
|
|
99,866 |
|
|
|
60,870 |
|
|
|
344,959 |
|
|
|
234,214 |
|
Non-cash stock-based compensation expense |
|
|
24,492 |
|
|
|
28,991 |
|
|
|
70,815 |
|
|
|
76,364 |
|
Change in fair value of interest rate swap |
|
|
1,668 |
|
|
|
(158 |
) |
|
|
— |
|
|
|
(863 |
) |
Adjusted EBITDA |
|
$ |
126,026 |
|
|
$ |
89,703 |
|
|
$ |
415,774 |
|
|
$ |
309,715 |
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Net income to non-GAAP net income: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income |
|
$ |
52,153 |
|
|
$ |
30,379 |
|
|
$ |
201,438 |
|
|
$ |
147,273 |
|
Non-cash stock-based compensation expense |
|
|
24,492 |
|
|
|
28,991 |
|
|
|
70,815 |
|
|
|
76,364 |
|
Change in fair value of interest rate swap |
|
|
1,668 |
|
|
|
(158 |
) |
|
|
— |
|
|
|
(863 |
) |
Income tax effect on non-GAAP adjustments |
|
|
(4,882 |
) |
|
|
(5,626 |
) |
|
|
(15,180 |
) |
|
|
(26,798 |
) |
Non-GAAP net income |
|
$ |
73,431 |
|
|
$ |
53,586 |
|
|
$ |
257,073 |
|
|
$ |
195,976 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted average shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic |
|
|
57,865 |
|
|
|
57,935 |
|
|
|
57,949 |
|
|
|
57,843 |
|
Diluted |
|
|
58,033 |
|
|
|
58,190 |
|
|
|
58,193 |
|
|
|
58,192 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Earnings per share, basic |
|
$ |
0.90 |
|
|
$ |
0.52 |
|
|
$ |
3.48 |
|
|
$ |
2.55 |
|
Earnings per share, diluted |
|
$ |
0.90 |
|
|
$ |
0.52 |
|
|
$ |
3.46 |
|
|
$ |
2.53 |
|
Non-GAAP net income per share, basic |
|
$ |
1.27 |
|
|
$ |
0.92 |
|
|
$ |
4.44 |
|
|
$ |
3.39 |
|
Non-GAAP net income per share, diluted |
|
$ |
1.27 |
|
|
$ |
0.92 |
|
|
$ |
4.42 |
|
|
$ |
3.37 |
|
31
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Earnings per share to non-GAAP net income per share, basic: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Earnings per share, basic |
|
$ |
0.90 |
|
|
$ |
0.52 |
|
|
$ |
3.48 |
|
|
$ |
2.55 |
|
Non-cash stock-based compensation expense |
|
|
0.42 |
|
|
|
0.50 |
|
|
|
1.22 |
|
|
|
1.32 |
|
Change in fair value of interest rate swap |
|
|
0.03 |
|
|
|
— |
|
|
|
— |
|
|
|
(0.01 |
) |
Income tax effect on non-GAAP adjustments |
|
|
(0.08 |
) |
|
|
(0.10 |
) |
|
|
(0.26 |
) |
|
|
(0.47 |
) |
Non-GAAP net income per share, basic |
|
$ |
1.27 |
|
|
$ |
0.92 |
|
|
$ |
4.44 |
|
|
$ |
3.39 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Earnings per share to non-GAAP net income per share, diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Earnings per share, diluted |
|
$ |
0.90 |
|
|
$ |
0.52 |
|
|
$ |
3.46 |
|
|
$ |
2.53 |
|
Non-cash stock-based compensation expense |
|
|
0.42 |
|
|
|
0.50 |
|
|
|
1.22 |
|
|
|
1.31 |
|
Change in fair value of interest rate swap |
|
|
0.03 |
|
|
|
— |
|
|
|
— |
|
|
|
(0.01 |
) |
Income tax effect on non-GAAP adjustments |
|
|
(0.08 |
) |
|
|
(0.10 |
) |
|
|
(0.26 |
) |
|
|
(0.46 |
) |
Non-GAAP net income per share, diluted |
|
$ |
1.27 |
|
|
$ |
0.92 |
|
|
$ |
4.42 |
|
|
$ |
3.37 |
|
32
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Sensitivity
We had cash and cash equivalents totaling $317.2 million as of September 30, 2022. These amounts are invested primarily in demand deposit accounts and money market funds. We 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. 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. Due in part to these factors, our future investment income may fall short of expectations due to changes in interest rates, or we may suffer losses in principal if we are forced to sell securities that decline in market value due to changes in interest rates.
To mitigate interest rate risk, we entered into the Interest Rate Swap Agreement. The Interest Rate Swap Agreement effectively eliminated a portion of the variable rate and coinciding interest rate risk associated with our outstanding indebtedness. We exited the interest rate swap on August 24, 2022.
As of September 30, 2022, we had $29.0 million of indebtedness outstanding under the July 2022 Revolving Credit Facility. 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. As of September 30, 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.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As required by Rule 13a-15(b) and Rule 15d-15(b) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), our management, including our chief executive officer and chief financial officer, evaluated, as of September 30, 2022, the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Exchange Act. Based on that evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective as of September 30, 2022 to ensure that information required to be disclosed by us in this Form 10-Q is recorded, processed, summarized and reported within the time periods specified by the rules and forms of the Exchange Act and is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosures.
We believe, however, that a controls system, no matter how well designed and operated, can only provide reasonable assurance that the objectives of the controls systems are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud or error, if any, within a company have been detected.
Changes in Internal Control over Financial Reporting
There have been no material changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
33
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
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. 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 1A. Risk Factors
There have been no material changes from the information set forth in “Item 1A. Risk Factors” in the Form 10-K filed with the SEC on February 17, 2022.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The number of shares of common stock repurchased by us during the three months ended September 30, 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) |
|
||||
July 1 - 31, 2022(2) |
|
|
30 |
|
|
$ |
330.49 |
|
|
|
30 |
|
|
$ |
549,991,000 |
|
August 1 - 31, 2022(2) |
|
|
193 |
|
|
$ |
367.62 |
|
|
|
193 |
|
|
$ |
1,099,930,000 |
|
September 1 - 30, 2022(2) |
|
|
408 |
|
|
$ |
351.58 |
|
|
|
408 |
|
|
$ |
1,099,786,000 |
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Total |
|
|
631 |
|
|
|
|
|
|
631 |
|
|
|
|
||
Item 5. Other Information
Amended and Restated Bylaws
On October 31, 2022, our Board of Directors adopted amended and restated bylaws of the Company (as so amended and restated, the “Amended and Restated Bylaws”), effective immediately. The Amended and Restated Bylaws, among other things:
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The foregoing summary of the Amended and Restated Bylaws does not purport to be complete and is qualified in its entirety by reference to the complete text of the Amended and Restated Bylaws, a copy of which is attached hereto as Exhibit 3.2 and is incorporated herein by reference.
35
Item 6. Exhibits
The following exhibits are incorporated herein by reference or are filed with this Quarterly Report on Form 10-Q, in each case as indicated therein (numbered in accordance with Item 601 of Regulation S-K):
Exhibit No. |
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Description |
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3.1 |
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3.2* |
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|
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4.1 |
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|
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10.1+ |
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|
|
|
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31.1* |
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|
|
|
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31.2* |
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|
|
|
|
32.1** |
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|
|
|
|
|
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101.INS |
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Inline XBRL Instance Document – the XBRL Instance Document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
|
|
|
101.SCH* |
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Inline XBRL Taxonomy Extension Schema Document. |
|
|
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101.CAL* |
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document. |
|
|
|
101.DEF* |
|
Inline XBRL Taxonomy Extension Definition Linkbase Document. |
|
|
|
101.LAB* |
|
Inline XBRL Taxonomy Extension Label Linkbase Document. |
|
|
|
101.PRE* |
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document. |
104 |
|
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
+ Schedules and exhibits have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The Company agrees to furnish to the SEC a copy of any omitted schedule or exhibit upon request.
* Filed herewith.
** The certifications attached as Exhibit 32.1 are not deemed “filed” with the SEC and are not to be incorporated by reference into any filing of Paycom Software, Inc. under the Securities Act whether made before or after the date of this Quarterly Report on Form 10-Q, irrespective of any general incorporation language contained in such filing.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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PAYCOM SOFTWARE, INC. |
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Date: November 3, 2022 |
By: |
/s/ Chad Richison |
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Chad Richison |
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President and Chief Executive Officer |
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(Principal Executive Officer) |
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Date: November 3, 2022 |
By: |
/s/ Craig E. Boelte |
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Craig E. Boelte |
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Chief Financial Officer |
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|
(Principal Accounting Officer and Principal Financial Officer) |
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Exhibit 3.2
AMENDED AND RESTATED
BYLAWS
OF
PAYCOM SOFTWARE, INC.
(as adopted October 31, 2022)
*****
ARTICLE I
OFFICES
Section 1.01. Registered Office. The address of the registered office of Paycom Software, Inc. (the “Corporation”) in the State of Delaware is 108 Lakeland Avenue, City of Dover, County of Kent, Delaware 19901.
Section 1.02. Other Offices. The Corporation may also have offices at such other places both within and without the State of Delaware as the Board of Directors may from time to time determine or the business of the Corporation may require.
Section 1.03. Books. The books of the Corporation may be kept within or without the State of Delaware as the Board of Directors may from time to time determine or the business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 2.01. Time and Place of Meetings. All meetings of stockholders shall be held at such place, if any, either within or without the State of Delaware, on such date and at such time as may be determined from time to time by the Board of Directors (or the Chairman in the absence of a designation by the Board of Directors). The Board of Directors may, in its sole discretion, determine that the meeting shall not be held at any place but may instead be held solely by means of remote communication or held in person and by means of remote communication.
Section 2.02. Annual Meetings. An annual meeting of stockholders shall be held for the election of directors and to transact such other business as may properly be brought before the meeting in accordance with these Bylaws.
Section 2.03. Special Meetings. A special meeting of stockholders may be called only by the Board of Directors acting pursuant to a resolution adopted by a majority of the Whole Board (as defined below) or by the President of the Corporation and may not be called by any other person.
Section 2.04. Conduct at Meetings. The Chairman of the Board of Directors or the President of the Corporation shall act as chairman or co-chairman, as applicable, of any meetings of stockholders. The Secretary or Assistant Secretary of the Corporation shall act as secretary of the meeting. If neither the Secretary nor an Assistant Secretary is present, the chairman of the meeting shall appoint a secretary of the meeting. The Board of Directors may adopt such rules and regulations for the conduct of the meeting of stockholders as it shall deem appropriate. Unless otherwise determined by the Board of Directors prior to the meeting, the chairman of the meeting shall determine the order of business and shall have the authority in his or her discretion to regulate the conduct of any such meeting, including, without limitation, convening the meeting and adjourning the meeting (whether or not a quorum is present), announcing the date and time of the opening and the closing of the polls for each matter upon which the stockholders will vote, imposing restrictions on the persons (other than stockholders of record of the Corporation or their duly appointed proxies) who may attend any such meeting, establishing procedures for the dismissal of business not properly presented, maintaining order at the meeting and safety of those present, restricting entry to the meeting after the time fixed for commencement thereof and limiting the circumstances in which any person may make a statement or ask questions, and the time allotted thereto, at any meeting of stockholders.
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Section 2.05. Notice of Meetings; Waivers of Notice; Adjourned Meetings.
(a) Whenever stockholders are required or permitted to take any action at a meeting, a written notice of the meeting shall be given which shall state the place, if any, date and hour of the meeting, the means of remote communication, if any, by which stockholders and proxy holders may be deemed to be present in person and vote at such meeting, the record date for determining the stockholders entitled to vote at the meeting (if such date is different from the record date for stockholders entitled to notice of the meeting) and, in the case of a special meeting, the purpose or purposes for which the meeting is called. Unless otherwise provided by the General Corporation Law of the State of Delaware as the same exists or may hereafter be amended (“Delaware Law”), such notice shall be given not less than ten (10) nor more than sixty (60) days before the date of the meeting to each stockholder of record entitled to vote at such meeting. Without limiting the manner by which notices of meetings otherwise may be given effectively to stockholders, any such notice may be given by electronic transmission in accordance with applicable law. Business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice.
(b) A written waiver of any such notice signed by the person entitled thereto, or a waiver by electronic transmission by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends the meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened.
(c) The Board of Directors or the chairman of the meeting may adjourn the meeting to another time or place, if any (whether or not a quorum is present), and notice need not be given of the adjourned meeting if the time thereof, place, if any, thereof and the means of remote communication, if any, are provided in accordance with applicable law. At the adjourned meeting, the Corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than thirty (30) days, or after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the adjourned meeting.
Section 2.06. Quorum. Unless otherwise provided under the Corporation’s Certificate of Incorporation or these Bylaws and subject to Delaware Law, the presence, in person or by proxy, of the holders of a majority of the outstanding capital stock of the Corporation entitled to vote at a meeting of stockholders shall constitute a quorum for the transaction of business. A quorum, once established, shall not be broken by the subsequent withdrawal of enough votes to otherwise leave less than a quorum. If a quorum shall not be present or represented at any meeting of the stockholders, the chairman of the meeting or a majority in voting interest of the stockholders present in person or represented by proxy may adjourn the meeting, in the manner provided in Section 2.05(c), until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented any business may be transacted that might have been transacted at the meeting as originally notified.
Section 2.07. Voting.
(a) Unless otherwise provided by Delaware Law or the Certificate of Incorporation, each stockholder shall be entitled to one vote for each outstanding share of capital stock of the Corporation held by such stockholder. Any share of capital stock of the Corporation held by the Corporation shall have no voting rights. Except as otherwise provided by Delaware Law, the Certificate of Incorporation or these Bylaws, in all matters other than the election of directors, the affirmative vote of the majority of the shares of capital stock of the Corporation present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders. Subject to the rights of the holders of any series of preferred stock to elect additional directors under specific circumstances, directors shall be elected by a plurality of the votes of the shares of capital stock of the Corporation present in person or represented by proxy at the meeting and entitled to vote on the election of directors.
(b) Each stockholder entitled to vote at a meeting of stockholders may authorize another person or persons to act for such stockholder by proxy, appointed by an instrument in writing, subscribed by such stockholder or by his attorney thereunto authorized, and delivered to the Secretary of the Corporation. The authorization of a person to act as proxy may be documented, signed, and delivered in accordance with Section 116 of Delaware Law, provided, that such authorization shall set forth, or be delivered with, information enabling the Corporation to determine the identity of the stockholder granting such authorization. A proxy shall be irrevocable if it states that it is irrevocable and if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power. A stockholder may revoke any proxy that is not irrevocable by attending the meeting and voting in person or by delivering to the Secretary
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of the Corporation a revocation of the proxy or a new proxy bearing a later date. No proxy shall be voted after three (3) years from its date, unless said proxy provides for a longer period.
(c) In determining the number of votes cast for or against a proposal or nominee, shares abstaining from voting on a matter and votes by a broker that have not been directed by the beneficial owner will be counted for purposes of determining a quorum but not for purposes of determining the number of votes cast.
Section 2.08. Permitted Actions by Written Consent. Unless otherwise provided in the Certificate of Incorporation, an action to be taken at any annual or special meeting of stockholders may not be taken without a meeting, without prior notice or without a vote.
Section 2.09. Voting Lists. The officer or agent having charge of the transfer book for stock of the Corporation shall make a complete list of the stockholders entitled to vote at such meeting, arranged in alphabetical order, with the address of and the number of shares of stock held by each, available for inspection by any stockholder, for any purpose germane to the meeting, for a period of ten (10) days ending on the day before the meeting, either (a) during ordinary business hours, at the Corporation’s principal executive offices or (b) on a reasonably accessible electronic network, provided that the information required to gain access to such list was provided with the notice of the meeting. The original stock transfer books (or any duplicates thereof maintained by the Corporation) shall be the only evidence of the identity of the stockholders entitled to examine such list or transfer books or to vote at any meeting of stockholders.
Section 2.10. Advance Notice of Stockholder Nominations and Proposals.
(a) Timely Notice. At an annual meeting of the stockholders, only such nominations of persons for the election to the Board of Directors shall be considered and such other business shall be conducted as shall have been properly brought before the meeting. To be properly brought before an annual meeting, nominations or such other business must be: (i) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (ii) otherwise properly brought before the meeting by or at the direction of the Board of Directors (or any authorized committee thereof) or (iii) otherwise properly brought before an annual meeting by a stockholder (A) who is a stockholder of record of the Corporation (and, with respect to any beneficial owner, if different, on whose behalf such business is proposed or such nomination or nominations are made, only if such beneficial owner is the beneficial owner of shares of the Corporation) both at the time such notice of meeting is delivered and on the record date for the determination of stockholders entitled to vote at the annual meeting of stockholders, (B) who is entitled to vote at the meeting and (C) who complies with the procedures set forth in this Section 2.10. For the avoidance of doubt, the foregoing clause (iii) shall be the exclusive means for a stockholder to make nominations or propose other business at an annual meeting of stockholders (other than a proposal included in the Corporation’s proxy statement pursuant to and in compliance with Rule 14a-8 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). In addition, any proposal of business (other than the nomination of persons for election to the Board of Directors) must be a proper matter for stockholder action. For nominations or other business to be properly brought before an annual meeting by a stockholder pursuant to Section 2.10(a)(iii), a Proposing Stockholder (as defined below) must have given timely notice thereof pursuant to this Section 2.10, in writing to the Secretary of the Corporation, even if such matter is already the subject of any notice to the stockholders or Public Disclosure (as defined below) from the Board of Directors. To be timely, a Proposing Stockholder’s notice must be delivered to the Secretary at the principal executive offices of the Corporation: (x) not later than the close of business on the ninetieth (90th) day, nor earlier than the close of business on the one hundred and twentieth (120th) day in advance of the anniversary of the previous year’s annual meeting if such meeting is to be held on a day which is not more than thirty (30) days in advance of the anniversary of the previous year’s annual meeting or not later than seventy (70) days after the anniversary of the previous year’s annual meeting; and (y) with respect to any other annual meeting of stockholders, not later than the close of business on the later of the ninetieth (90th) day prior to such annual meeting or the close of business on the tenth (10th) day following the first date of Public Disclosure of the date of such meeting. In no event shall the Public Disclosure of an adjournment or postponement of an annual meeting commence a new notice time period (or extend any notice time period) for the giving of a stockholder’s notice as described above.
(b) Stockholder Nominations. For the nomination of any person or persons for election to the Board of Directors, a Proposing Stockholder’s timely notice to the Secretary of the Corporation (in accordance with the time periods for delivery of timely notice as set forth in this Section 2.10) shall set forth or include:
(i) the name, age, business address and residence address of each nominee proposed in such notice;
(ii) the principal occupation or employment of each such nominee;
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(iii) the number of shares of capital stock of the Corporation which are owned of record and directly or indirectly beneficially by each such nominee (if any);
(iv) such other information concerning each such nominee as would be required to be disclosed in a proxy statement soliciting proxies for the election of such nominee as a director in an election contest (even if an election contest is not involved) or other filings required to be made in connection with solicitation of proxies for election of directors pursuant to Section 14(a) of the Exchange Act and the rules and regulations promulgated thereunder;
(v) a completed and signed questionnaire regarding the background and qualification of such person to serve as a director, in the form to be provided by the Secretary upon written request of any stockholder of record within ten (10) days of such request;
(vi) a written statement and agreement executed by the nominee acknowledging that such person:
(A) consents to being named in the proxy statement as a nominee and to serving as a director if elected;
(B) intends to serve as a director for the full term for which such person is standing for election; and
(C) makes the following representations: (1) that the director nominee has read and agrees to adhere to the Corporation’s Corporate Governance Guidelines, Code of Ethics and Business Conduct, Related Party Transactions Policy, and any other of the Corporation's policies or guidelines applicable to directors, including with regard to securities trading, (2) that the director nominee is not and will not become a party to any agreement, arrangement, or understanding with, and has not given any commitment or assurance to, any person or entity as to how such person, if elected as a director of the Corporation, will act or vote on any nomination or other business proposal, issue, or question (a “Voting Commitment”) that has not been disclosed to the Corporation or any Voting Commitment that could limit or interfere with such person’s ability to comply, if elected as a director of the Corporation, with such person’s fiduciary duties under applicable law, and (3) that the director nominee is not and will not become a party to any agreement, arrangement, or understanding with any person or entity other than the Corporation with respect to any direct or indirect compensation, reimbursement, or indemnification (“Compensation Arrangement”) that has not been disclosed to the Corporation in connection with such person’s nomination for director or service as a director;
(vii) as to the Proposing Stockholder:
(A) the name and address of the Proposing Stockholder as they appear on the Corporation’s books and the name and address of any Related Person (as defined below) of the Proposing Stockholder;
(B) the class or series and number of shares of the Corporation’s capital stock which are directly or indirectly owned by the Proposing Stockholder (beneficially and of record) and owned by any Related Person of the Proposing Stockholder, as of the date of the Proposing Stockholder’s notice, and a representation that the Proposing Stockholder will notify the Corporation in writing of the class and number of such shares owned of record and beneficially as of the record date for the meeting promptly following the later of the record date or the first date of Public Disclosure of the record date;
(C) a description of any agreement, arrangement or understanding (written or oral) between such Proposing Stockholder, on the one hand, and any Related Person of the Proposing Stockholder, on the other hand, related to (1) the nomination or other business proposed or (2) any subject matter that will be material in such Proposing Stockholder’s solicitation of stockholders (including, without limitation, matters of social, labor, environmental or governance policy), regardless of whether such agreement, arrangement or understanding relates specifically to the Corporation;
(D) a description of any agreement, arrangement or understanding (written or oral) between such Proposing Stockholder or any Related Person of the Proposing Stockholder, on the one hand, and the director nominee or any other person or persons (including their names) acting in concert with such nominee, on the other hand, related to (1) the nomination or (2) any subject matter that will be material in such Proposing Stockholder’s solicitation of stockholders (including, without limitation, matters of social, labor, environmental or governance policy), regardless of whether such agreement, arrangement or understanding relates specifically to the Corporation;
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(E) the class or series, if any, and number of options, warrants, puts, calls, convertible securities, stock appreciation rights, or similar rights, obligations or commitments with an exercise or conversion privilege or a settlement payment or mechanism at a price related to any class or series of shares or other securities of the Corporation or with a value derived in whole or in part from the value of any class or series of shares or other securities of the Corporation, whether or not such instrument, right, obligation or commitment shall be subject to settlement in the underlying class or series of shares or other securities of the Corporation (each a “Derivative Security”), which are, directly or indirectly, beneficially owned by the Proposing Stockholder or any Related Person of the Proposing Stockholder;
(F) any agreement, arrangement, understanding, or relationship, including any repurchase or similar so-called “stock borrowing” agreement or arrangement, engaged in, directly or indirectly, by the Proposing Stockholder or beneficial owner or any of their affiliates or associates, the purpose or effect of which is to mitigate loss to, reduce the economic risk (of ownership or otherwise) of any class or series of capital stock or other securities of the Corporation by, manage the risk of share price changes for, or increase or decrease the voting power of, such Proposing Stockholder or any Related Person of the Proposing Stockholder or any of their respective affiliates or associates with respect to any class or series of capital stock or other securities of the Corporation, or that provides, directly or indirectly, the opportunity to profit or share in any profit derived from any decrease in the price or value of any class or series or capital stock or other securities of the Corporation;
(G) a description of any other direct or indirect opportunity for the Proposing Stockholder or any Related Person of the Proposing Stockholder to profit or share in any profit (including any performance-based fees) derived from any increase or decrease in the value of shares or other securities of the Corporation;
(H) any proxy, contract, arrangement, understanding or relationship pursuant to which the Proposing Stockholder or any Related Person of the Proposing Stockholder or any of their respective affiliates or associates has a right to vote any shares or other securities of the Corporation;
(I) any rights to dividends on the shares of the Corporation owned beneficially by the Proposing Stockholder or any Related Person of the Proposing Stockholder or any of their respective affiliates or associates that are separated or separable from the underlying shares of the Corporation;
(J) any proportionate interest in shares of the Corporation or Derivative Securities held, directly or indirectly, by a general or limited partnership in which the Proposing Stockholder or any Related Person of the Proposing Stockholder or any of their respective affiliates or associates is a general partner or, directly or indirectly, beneficially owns an interest in a general partner, if any;
(K) a description of all agreements, arrangements, and understandings between the Proposing Stockholder or any Related Person of the Proposing Stockholder or any of their respective affiliates or associates and any other person(s) (including their name(s)) in connection with or related to the ownership or voting of capital stock of the Corporation or Derivative Securities;
(L) a representation that the Proposing Stockholder is a holder of record of shares of the Corporation entitled to vote at the meeting and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice or to propose such other business, and an acknowledgement that, if the Proposing Stockholder (or a qualified representative (as defined below) of the Proposing Stockholder) does not appear to present the Proposing Stockholder’s nomination or other business proposal at such meeting, the Corporation need not present the Proposing Stockholder’s nomination or other business proposal for a vote at such meeting, notwithstanding that proxies in respect of such vote may have been received by the Corporation;
(M) the names and addresses of other stockholders (including beneficial and record owners) known by the Proposing Stockholder to support the nomination or other business proposal, and to the extent known, the class or series and number of all shares of the Corporation’s capital stock owned beneficially or of record by such other stockholders;
(N) any plans or proposals on the part of the Proposing Stockholder or any Related Person of the Proposing Stockholder to, within the next 12 months, nominate directors at any other Public Company (as defined below);
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(O) any proposals or nominations submitted on behalf of the Proposing Stockholder or any Related Person of the Proposing Stockholder seeking to nominate directors at any other Public Company within the past 36 months (whether or not such proposal or nomination was publicly disclosed);
(P) any other information relating to the Proposing Stockholder and any Related Person of the Proposing Stockholder that would be required to be disclosed in a proxy statement soliciting proxies for the election of such person as a director in an election contest (even if an election contest is not involved) or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder;
(Q) a description of all direct and indirect compensation and other material monetary agreements, arrangements and understandings during the past three years, and any other material relationships, between or among the Proposing Stockholder or any Related Person of the Proposing Stockholder, or others acting in concert therewith, on the one hand, and each proposed nominee, and his or her respective affiliates and associates, or others acting in concert therewith, on the other hand, including, without limitation all information that would be required to be disclosed pursuant to Rule 404 promulgated under Regulation S-K if the Proposing Stockholder or any Related Person of the Proposing Stockholder, or any person acting in concert therewith, was the “registrant” for purposes of such rule and the nominee was a director or executive officer of such registrant;
(R) any direct or indirect interest of the Proposing Stockholder or any Related Person of the Proposing Stockholder in any contract with the Corporation or any affiliate of the Corporation (including any employment agreement, collective bargaining agreement or consulting agreement);
(S) a complete and accurate description of any pending, or to the Proposing Stockholder’s knowledge, threatened, legal proceeding in which such Proposing Stockholder or any Related Person of the Proposing Stockholder is a party or participant involving the Corporation or, to such Proposing Stockholder’s knowledge, any current or former officer, director, affiliate or associate of the Corporation;
(T) a statement of whether or not the Proposing Stockholder, its qualified representatives and/or any Related Person of the Proposing Stockholder intend to solicit proxies or votes in support of such director nominees or nomination in accordance with Rule 14a-19 promulgated under the Exchange Act (and if so, such statement shall also include an undertaking that the Proposing Stockholder will deliver to beneficial owners of shares representing at least 67% of the voting power of the stock entitled to vote generally in the election of directors either (1) at least 20 calendar days before the annual meeting, a copy of its definitive proxy statement for the solicitation of proxies for its director candidates, or (2) at least 40 calendar days before the annual meeting a Notice of Internet Availability of Proxy Materials that would satisfy the requirements of Rule 14a-16(d) of the Exchange Act);
(U) a representation that the Proposing Stockholder will provide the Corporation with the updates and supplements required by Section 2.10(d);
(V) a representation that the Proposing Stockholder has complied with all applicable requirements of state law and the Exchange Act with respect to matters set forth in this Section 2.10.
The Corporation may require any proposed nominee to furnish such other information as it may reasonably require to determine the eligibility of such proposed nominee to serve as an independent director of the Corporation or that could be material to a reasonable stockholder’s understanding of the independence, or lack thereof, of such nominee.
(c) Other Stockholder Proposals. For all business other than director nominations, a Proposing Stockholder’s notice to the Secretary of the Corporation shall set forth as to each matter the Proposing Stockholder proposes to bring before the annual meeting: (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting; (ii) the text of any proposal or business (including the text of any resolutions proposed for consideration and in the event that such business includes a proposal to amend these Bylaws, the language of the proposed amendment); (iii) any other information relating to the Proposing Stockholder required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for the proposal and pursuant to and in accordance with Section 14(a) of the Exchange Act and
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the rules and regulations promulgated thereunder and (iv) all of the other information required by Section 2.10(b)(vii) above.
(d) Supplements and Updates.
(i) A Proposing Stockholder providing notice of a director nomination or other business proposed to be brought before an annual meeting shall further update and supplement such notice, if necessary, so that the information provided or required to be provided in such notice pursuant to this Section 2.10 shall be true and correct as of the record date for the meeting and as of the date that is ten (10) business days prior to the meeting or any adjournment or postponement thereof, and such update and supplement shall be delivered to, or mailed and received by, the Secretary at the principal executive offices of the Corporation (A) in the case of the update and supplement required to be made as of the record date for the meeting, not later than five (5) business days after such record date and (B) in the case of the update and supplement required to be made as of ten (10) business days prior to the meeting or any adjournment or postponement thereof, as applicable, not later than eight (8) business days prior to the date for the meeting or any adjournment or postponement thereof. For the avoidance of doubt, any information provided pursuant to this Section 2.10(d) shall not be deemed to cure any deficiencies in a notice previously delivered pursuant to this Section 2.10 and shall not extend the time period for the delivery of notice pursuant to this Section 2.10. If a Proposing Stockholder fails to provide any written update or supplement in accordance with this Section 2.10(d), the information as to which such written update or supplement relates may be deemed not to have been provided in accordance with this Section 2.10.
(ii) If any information submitted pursuant to this Section 2.10 shall be inaccurate in any material respect, such information shall be deemed not to have been provided in accordance with this Section 2.10. The Proposing Stockholder shall notify the Secretary in writing at the principal executive offices of the Corporation of any material inaccuracy or material change in any information submitted pursuant to this Section 2.10 (including if the Proposing Stockholder or any Related Person of the Proposing Stockholder no longer intends to solicit proxies in accordance with the representation made pursuant to Section 2.10(b)(vii)(T) within two (2) business days after becoming aware of such inaccuracy or change. Upon written request of the Secretary on behalf of the Board of Directors (or a duly authorized committee thereof), the Proposing Stockholder shall provide, within five (5) business days after delivery of such request (or such earlier period as may be specified in such request), (A) written verification, reasonably satisfactory to the Board of Directors or any authorized officer of the Corporation, to demonstrate the accuracy of any information submitted by such Proposing Stockholder pursuant to this Section 2.10 and (B) a written affirmation of any information submitted by such Proposing Stockholder pursuant to this Section 2.10 as of an earlier date. If the Proposing Stockholder fails to provide such written verification or affirmation within such period, the information as to which written verification or affirmation was requested may be deemed not to have been provided in accordance with this Section 2.10.
(e) Proxy Rules. Notwithstanding the foregoing provisions of this Section 2.10, a stockholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this Section 2.10. Nothing in this Section 2.10 shall be deemed to (i) affect any rights of stockholders to request inclusion of proposals in the Corporation’s proxy statement pursuant to Rule 14a-8 under the Exchange Act (or any successor rule thereto), or (ii) affect any rights of the holders of any series of preferred stock to elect directors pursuant to any applicable provisions of the Certificate of Incorporation. This Section 2.10 shall not apply to a proposal proposed to be made by a stockholder if the stockholder has notified the Corporation of the stockholder’s intention to present the proposal at an annual or special meeting only pursuant to and in compliance with Rule 14a-8 under the Exchange Act and such proposal has been included in a proxy statement that has been prepared by the Corporation to solicit proxies for such meeting.
(f) Special Meetings of Stockholders. Only such business shall be conducted at a special meeting of stockholders as is a proper matter for stockholder action under Delaware Law and as shall have been brought before the meeting pursuant to the Corporation’s notice of meeting. Nominations of persons for election to the Board of Directors may be made at a special meeting of stockholders at which directors are to be elected pursuant to the Corporation’s notice of meeting (i) by or at the direction of the Board of Directors (or any authorized committee thereof) or (ii) provided that the Board of Directors has determined that directors shall be elected at such meeting, by any stockholder of the Corporation who (A) is a stockholder of record of the Corporation (and, with respect to any beneficial owner, if different, on whose behalf such nomination or nominations are made, only if such beneficial owner is the beneficial owner of shares of the Corporation) both at the time the notice provided for in this Section 2.10 is delivered to the Secretary of the Corporation and upon the record date for the determination of stockholders entitled
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to vote at the meeting, (B) who is entitled to vote at the meeting and upon such election and (C) who complies with the notice procedures set forth in this Section 2.10. In the event the Corporation calls a special meeting of stockholders for the purpose of electing one or more directors to the Board of Directors, any such stockholder entitled to vote in such election of directors may nominate a person or persons (as the case may be) for election to such position(s) as specified in the Corporation’s notice of meeting, if the stockholder’s notice required by this Section 2.10 shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the ninetieth (90th) day prior to such special meeting and not earlier than the close of business on the later of the one hundred and twentieth (120th) day prior to such special meeting or the tenth (10th) day following the date of Public Disclosure of the date of the special meeting and of the nominees proposed by the Board of Directors to be elected at such meeting. In no event shall the Public Disclosure of an adjournment or postponement of a special meeting commence a new time period (or extend any notice time period) for the giving of a stockholder’s notice as described above.
(g) Effect of Noncompliance.
(i) Notwithstanding anything in these Bylaws to the contrary: (A) no nominations shall be made or business shall be conducted at any annual or special meeting except in accordance with the procedures set forth in this Section 2.10, and (B) unless otherwise required by law, if a Proposing Stockholder intending to propose business or make nominations at an annual or special meeting pursuant to this Section 2.10 does not comply with or provide the information required under this Section 2.10 to the Corporation promptly following the later of the record date or the first date of Public Disclosure of the record date, or the Proposing Stockholder (or a qualified representative of the Proposing Stockholder) does not appear at the meeting to present the proposed business or nominations, such business or nominations shall not be considered, notwithstanding that proxies in respect of such business or nominations may have been received by the Corporation.
(ii) Notwithstanding the foregoing provisions of this Section 2.10, unless otherwise required by law, no stockholder shall solicit proxies in support of director nominees other than the Corporation’s nominees unless such stockholder has compiled with Rule 14a-19 promulgated under the Exchange Act in connection with the solicitation of such proxies. If (A) any stockholder provides notice pursuant to Rule 14a-19(b) under the Exchange Act and (B) such stockholder subsequently fails to comply with the requirements of Rule 14a-19(a)(2) or (3) under the Exchange Act (as determined by the Board of Directors or an officer designated thereby), then the Corporation shall disregard any proxies for any proposed nominees on the Corporation’s proxy card other than the Corporation’s nominees, notwithstanding that proxies in favor thereof may have been received by the Corporation. Upon request by the Corporation, if any stockholder provides notice pursuant to Rule 14a-19(b) under the Exchange Act, such stockholder shall deliver to the Secretary, no later than five (5) business days prior to the applicable meeting, reasonable evidence that the requirements of Rule 14a-19(a)(3) under the Exchange Act have been satisfied.
(iii) The Board of Directors (or an officer designated thereby) shall have the power and the duty to determine whether a nomination has been made or other business has been proposed in accordance with the provisions set forth in this Section 2.10, and, if the Board of Directors or such officer determines that any nomination was not made or such other business was not proposed in accordance with the provisions of this Section 2.10, such nomination or such other proposed business shall not be considered at the meeting in question.
(h) Definitions.
(i) A Proposing Stockholder shall be deemed to be “acting in concert” with a Person if such Proposing Stockholder has knowingly acted (whether or not pursuant to an express agreement, arrangement or understanding) at any time during the prior two (2) years in concert with such Person (or Control Person thereof) in relation to matters (whether or not specific to the Corporation) that will be material to the Proposing Stockholder’s solicitation of stockholders, including, without limitation, matters of social, labor, environmental and governance policy; provided, however, that a Proposing Stockholder shall not be deemed to be acting in concert with a Person whose primary business is to serve as investment manager or adviser with respect to investing and trading in securities for a client or its own account.
(ii) “Control Person” means, with respect to any Person, collectively, (A) any direct and indirect control Person of such first Person, and (B) such first Person’s and any control Person’s respective directors, trustees, executive officers and managing members (including, with respect to an entity exempted from taxation under
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Section 501(1) of the Internal Revenue Code, each member of the board of trustees, board of directors, executive council or similar governing body thereof);
(iii) “Family Member” means a Person’s spouse, parents, children, siblings, mothers- and fathers-in-law, sons- and daughters-in-law, brothers- and sisters-in-law, and anyone (other than domestic employees) who shares the Person’s home.
(iv) “Person” means an individual, corporation, partnership, limited liability company, association, joint stock company, trust, unincorporated organization or a government or political subdivision thereof.
(v) “Proposing Stockholder” means, collectively, any stockholder giving the notice of director nomination or proposal of other business or, if the notice is given on behalf of a beneficial owner on whose behalf the nomination is made or other business is proposed, such beneficial owner, and if such stockholder or beneficial owner is an entity, each Control Person thereof (in each case of a stockholder, beneficial owner or Control Person, together with any Family Member thereof).
(vi) “Public Company” means a company with a class of equity securities registered pursuant to Section 12 of the Exchange Act, whether or not trading in such securities has been suspended.
(vii) “Public Disclosure” shall mean a disclosure made in a press release reported by the Dow Jones News Services, The Associated Press or a comparable national news service or in a document filed by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act, and the rules and regulations promulgated thereunder.
(viii) A “qualified representative” of a stockholder means a person that is a duly authorized officer, manager or partner of such stockholder or is authorized by a writing (A) executed by such stockholder, (B) delivered (or a reliable reproduction or electronic transmission of the writing is delivered) by such stockholder to the Corporation prior to the taking of the action taken by such person on behalf of such stockholder and (C) stating that such person is authorized to act for such stockholder with respect to the action to be taken.
(ix) “Related Person”, with respect to a Proposing Stockholder, shall be deemed to be a Person (and any Control Person thereof) with respect to which such Proposing Stockholder is acting in concert.
ARTICLE III
DIRECTORS
Section 3.01. General Powers. Except as otherwise provided by Delaware Law or the Certificate of Incorporation, the business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors.
Section 3.02. Number, Election and Term Of Office. The number of directors which shall constitute the Board of Directors shall be fixed exclusively from time to time solely by resolution adopted by the affirmative vote of a majority of the Whole Board. For purposes of these Bylaws, the term “Whole Board” shall mean the total number of authorized directors whether or not there exist any vacancies in previously authorized directorships. As set forth in Article VI of the Certificate of Incorporation, as amended to date, the directors shall be divided into three (3) classes (each, a “Class”), designated Class I, Class II and Class III. Each class shall consist, as nearly as may be possible, of one-third of the total number of directors constituting the entire Board of Directors. Except as otherwise provided in the Certificate of Incorporation, each director shall serve for a term ending on the date of the third annual meeting of stockholders next following the annual meeting at which such director was elected. Notwithstanding the foregoing, each director shall hold office until such director’s successor shall have been duly elected and qualified or until such director’s earlier death, resignation or removal. Directors need not be stockholders.
Section 3.03. Quorum and Manner of Acting. Unless the Certificate of Incorporation or these Bylaws require a greater number, a majority of the Whole Board shall constitute a quorum for the transaction of business at any meeting of the Board of Directors and, except as otherwise expressly required by Delaware Law, the Certificate of Incorporation or these Bylaws, the act of a majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors. When a meeting is adjourned to another time or place (whether or not a quorum is present), notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting, the Board of Directors may transact any business which might have been transacted at the original meeting. If a quorum shall not be present at any meeting of
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the Board of Directors the directors present thereat shall adjourn the meeting, from time to time, without notice other than announcement at the meeting, until a quorum shall be present.
Section 3.04. Time and Place of Meetings. The Board of Directors shall hold its meetings at such place, if any, either within or without the State of Delaware, and at such time as may be determined from time to time by the Board of Directors (or the Chairman in the absence of a determination by the Board of Directors).
Section 3.05. Annual Meeting. The Board of Directors shall meet for the election of officers and the transaction of other business, as soon as practicable after each annual meeting of stockholders, on the same day and at the same place where such annual meeting shall be held. Notice of such meeting need not be given. In the event such annual meeting is not so held, the annual meeting of the Board of Directors may be held at such place either within or without the State of Delaware, on such date and at such time as shall be specified in a notice thereof given as hereinafter provided in Section 3.07 herein or in a waiver of notice thereof signed by any director who chooses to waive the requirement of notice.
Section 3.06. Regular Meetings. Regular meetings of the Board of Directors may be held without notice being given at such time and at such place as shall from time to time be determined by the Board of Directors.
Section 3.07. Special Meetings. Special meetings of the Board of Directors may be called by the Chairman of the Board of Directors or by the President and shall be called by the Chairman of the Board of Directors or by the President on the written request of a majority of the Whole Board. Notice of special meetings of the Board of Directors shall be given to each director at least twenty-four (24) hours before the date of the meeting, or such shorter notice period as may be deemed necessary or advisable by the person or persons calling the meeting. Notice of special meetings of the Board of Directors shall be given in such manner as is determined by the Board of Directors. The notice need not specify the purpose of the meeting and, unless indicated in the notice thereof, any and all business may be transacted at a special meeting.
Section 3.08. Committees. The Board of Directors may designate one or more committees, each committee to consist of one or more of the directors of the Corporation. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board of Directors and permitted by applicable law, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to the following matters: (a) approving or adopting, or recommending to the stockholders, any action or matter expressly required by Delaware Law to be submitted to the stockholders for approval or (b) adopting, amending or repealing the Bylaws of the Corporation. Each committee shall keep regular minutes of its meetings and report the same to the Board of Directors when required.
Section 3.09. Committee Rules. Each committee of the Board of Directors may fix its own rules of procedure and shall hold its meetings as provided by such rules, except as may otherwise be provided by a resolution of the Board of Directors designating such committee. Unless otherwise provided in such a resolution, the presence of at least a majority of the members of the committee shall be necessary to constitute a quorum. In the event that a member is absent or disqualified, the member or members thereof present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in place of any such absent or disqualified member.
Section 3.10. Action by Consent. Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if all members of the Board of Directors or committee, as the case may be, consent thereto in writing or by electronic transmission, and any consent may be documented, signed, and delivered in any manner permitted by Section 116 of Delaware Law. After an action is taken, the consent or consents relating thereto shall be filed with the minutes of proceedings of the Board of Directors or committee in accordance with applicable law.
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Section 3.11. Telephonic Meetings. Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, members of the Board of Directors, or any committee designated by the Board of Directors, may participate in a meeting of the Board of Directors, or such committee, as the case may be, by means of conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other and be heard, and such participation in a meeting shall constitute presence in person at the meeting.
Section 3.12. Resignation. Any director may resign at any time by giving notice in writing or by electronic transmission to the Board of Directors, the Chairman of the Board of Directors, the Chief Executive Officer, the President or to the Secretary of the Corporation. The resignation of any director shall take effect upon receipt of notice thereof or at such later time as shall be specified in such notice, and unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. A verbal resignation shall not be deemed effective until confirmed by the director in writing or by electronic transmission to the Corporation.
Section 3.13. Vacancies. Except as otherwise provided in the Certificate of Incorporation, vacancies on the Board of Directors resulting from death, resignation, removal or otherwise and newly created directorships resulting from any increase in the number of directors may be filled solely by a majority of the directors then in office (although less than a quorum) or by the sole remaining director, and each director so elected shall hold office for a term that shall coincide with the term of the Class to which such director shall have been elected. If there are no directors in office, then an election of directors may be held in accordance with Delaware Law. Unless otherwise provided in the Certificate of Incorporation, when one or more directors shall resign from the Board of Directors effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have the power to fill such vacancy or vacancies and each director so chosen shall hold office as provided in the filling of the other vacancies.
Section 3.14. Removal. Any director may be removed from office as provided in the Certificate of Incorporation.
Section 3.15. Compensation. Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, the Board of Directors shall have authority to fix the compensation of directors, including fees and reimbursement of expenses.
Section 3.16. Preferred Stock Directors. Notwithstanding anything else contained herein, whenever the holders of one or more classes or series of Preferred Stock shall have the right, voting separately as a class or series, to elect directors, the election, term of office, filling of vacancies, removal and other features of such directorships shall be governed by the terms of the resolutions applicable thereto adopted by the Board of Directors pursuant to the Certificate of Incorporation, and such directors so elected shall not be subject to the provisions of Sections 3.02, 3.13 and 3.14 of this Article III unless otherwise provided therein.
ARTICLE IV
OFFICERS
Section 4.01. Principal Officers. The principal officers of the Corporation shall be a Chief Executive Officer, a President, a Chief Financial Officer, one or more Vice Presidents, a Treasurer and a Secretary. The Board of Directors may, by resolution, designate the Chairman of the Board of Directors of the Corporation as a principal officer. The Corporation may also have such other principal officers, including one or more Controllers, as the Board of Directors may in its discretion appoint. One person may hold the offices and perform the duties of any two or more of said offices, except that no one person shall hold the offices and perform the duties of President and Secretary.
(a) Chief Executive Officer. The Chief Executive Officer of the Corporation (the “Chief Executive Officer”) shall perform such duties as may be assigned to him or her from time to time by the Board of Directors. Subject to the direction of the Board of Directors, he or she shall have, and exercise, direct charge of, and general supervision over, the business and affairs of the Corporation and shall be its chief policy making officer. He or she shall from time to time report to the Board of Directors all matters within his or her knowledge that the interests of the Corporation may require to be brought to its notice, and shall also have such other powers and perform such other duties as may be specifically assigned to him or her from time to time by the Board of Directors. The Chief Executive Officer shall see that all resolutions and orders of the Board of Directors are carried into effect, and in connection with the foregoing, shall be authorized to delegate to a Vice President and the other officers such of his or her powers and such of his or her duties as the Board of Directors may deem to be advisable. The Chief Executive Officer shall possess the power
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to sign all contracts, certificates and other instruments of the Corporation as the Board of Directors from time to time may prescribe.
(b) President. The President of the Corporation (the “President”) shall perform such duties as may be assigned to him or her from time to time by the Board of Directors. Subject to the direction of the Board of Directors, he or she shall perform all duties incident to the office of a president in a corporation organized under Delaware Law. The President shall see that all resolutions and orders of the Board of Directors are carried into effect, and in connection with the foregoing, shall be authorized to delegate to a Vice President and the other officers such of his or her powers and such of his or her duties as the Board of Directors may deem to be advisable. The President may execute and deliver certificates for shares of the Corporation, any deeds, mortgages, bonds, contracts or other instruments that the Board of Directors has authorized to be executed and delivered, except in cases where the execution and delivery thereof shall be expressly delegated solely to another officer or delivery thereof shall be otherwise required by law to be executed and delivered by another person.
(c) Vice Presidents. The Vice President of the Corporation (a “Vice President”), or if there be more than one, the Vice Presidents, shall perform such duties as may be assigned to them from time to time by the Board of Directors or as may be designated by the Chief Executive Officer or the President. In case of the absence or disability of the President, the duties of the office shall, if the Board of Directors or the President has so authorized, be performed by the Vice President, or if there be more than one Vice President, by such Vice President as the Board of Directors shall designate. Certain Vice Presidents may from time to time be designated by the Board of Directors or the Chief Executive Officer or the President as Executive Vice Presidents or Senior Vice Presidents, which positions shall have such varying degrees of authority as the Board of Directors, the Chief Executive Officer or the President shall prescribe.
(d) Chief Financial Officer. The Chief Financial Officer of the Corporation (the “Chief Financial Officer”) shall be the principal financial officer of the Corporation and shall perform such duties as may be assigned to him or her from time to time by the Board of Directors.
(e) Treasurer. The Treasurer of the Corporation (the “Treasurer”) shall have the custody of the Corporation’s funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit all monies and other valuable effects in the name and to the credit of the Corporation, in such depositories as may be designated by the Board of Directors or by any officer authorized by the Board of Directors to make such designation. The Treasurer shall exercise such powers and perform such duties as generally pertain or are necessarily incident to his or her office and shall perform such other duties as may be specifically assigned to him or her from time to time by the Board of Directors, the Chief Executive Officer or the President. The Treasurer may sign and execute in the name of the Corporation deeds, mortgages, bonds, contracts or other instruments authorized by the Board of Directors and may execute and deliver such documents, certificates and such other instruments that the Board of Directors has authorized to be executed and delivered, except in cases where the execution and delivery thereof shall be expressly delegated to another officer or as otherwise required by law to be executed and delivered by another person.
(f) Secretary. The Secretary of the Corporation (the “Secretary”) shall attend all meetings of the Board of Directors and all meetings of stockholders and record all votes and the minutes of all proceedings in a book to be kept for that purpose and shall perform like duties for any committee when required. He or she shall give, or cause to be given, notice of all meetings of stockholders and, when necessary, special meetings of the Board of Directors. The Secretary shall exercise such powers and perform such duties as generally pertain or are necessarily incident to his or her office, and he or she shall perform such other duties as may be assigned to him or her from time to time by the Board of Directors, the Chief Executive Officer or the President. If the Secretary shall be unable or shall refuse to cause to be given notice of all meetings of the stockholders and special meetings of the Board of Directors, and if there be no Assistant Secretary, then either the Board of Directors or the Chairman of the Board of Directors may choose another officer to cause such notice to be given. The Secretary shall have custody of the seal of the Corporation and the Secretary or an Assistant Secretary, if there be one, shall have authority to affix the same to any instrument requiring it and when so affixed, it may be attested by the signature of the Secretary or by the signature of any such Assistant Secretary. The Board of Directors may give general authority to any other officer to affix the seal of the Corporation and to attest the affixing by his or her signature.
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Section 4.02. Appointment and Term of Office. Each officer of the Corporation shall hold office until his or her successor is appointed, or until his or her earlier death, resignation or removal. Any vacancy in any office shall be filled in such manner as the Board of Directors shall determine.
Section 4.03. Subordinate Officers. In addition to the principal officers enumerated in Section 4.01 herein, the Corporation may have one or more Assistant Treasurers, Assistant Secretaries and Assistant Controllers and such other subordinate officers, agents and employees as the Board of Directors may deem necessary, each of whom shall hold office for such period as the Board of Directors may from time to time determine. The Board of Directors may delegate to any principal officer the power to appoint and to remove any such subordinate officers, agents or employees or delegate the powers or duties of any officer to any other officer or agent, notwithstanding any provision hereof.
Section 4.04. Removal. Any officer may be removed, with or without cause, at any time, by resolution adopted by the Board of Directors or by other principal officers upon whom such power of removal may have been conferred by the Board of Directors. The removal of an officer shall be without prejudice to such officer’s contract rights, if any.
Section 4.05. Resignations. Any officer may resign at any time by giving notice in writing or by electronic transmission to the Board of Directors (or to a principal officer if the Board of Directors has delegated to such principal officer the power to appoint and to remove such officer). The resignation of any officer shall take effect upon receipt of notice thereof or at such later time as shall be specified in such notice, and unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.
Section 4.06. Powers and Duties. The officers of the Corporation shall have such powers and perform such duties incident to each of their respective offices and such other duties as may from time to time be conferred upon or assigned to them by the Board of Directors. In case any officer is absent, or for any other reason that the Board of Directors may deem sufficient, the Chief Executive Officer or the President or the Board of Directors may delegate for the time being the powers or duties of such officer to any other officer or to any director.
Section 4.07. Compensation. Compensation of all executive officers shall be approved by the Board of Directors, and no officer shall be prevented from receiving such compensation by virtue of his or her also being a director of the Corporation; provided, that compensation of some or all executive officers may be determined by a committee established for that purpose if so authorized by the Board of Directors or as required by applicable law or any applicable rule or regulation, including any rule or regulation of any stock exchange upon which the Corporation’s securities are then listed for trading.
ARTICLE V
CAPITAL STOCK
Section 5.01. Certificates For Stock; Uncertificated Shares. The shares of the Corporation shall be represented by certificates; provided, that the Board of Directors of the Corporation may provide by resolution or resolutions that some or all of any or all classes or series of its stock may be uncertificated shares. Any such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the Corporation. Except as otherwise provided by law, the rights and obligations of the holders of uncertificated shares and the rights and obligations of the holders of shares represented by certificates of the same class and series shall be identical. Every holder of stock represented by certificates shall be entitled to have a certificate signed by any two authorized officers of the Corporation representing the number of shares registered in certificate form. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if such person were such officer, transfer agent or registrar at the date of issue. The Corporation shall not have power to issue a certificate in bearer form.
Section 5.02. Transfer Of Shares. Shares of the stock of the Corporation may be transferred on the record of stockholders of the Corporation by the holder thereof or by such holder’s duly authorized attorney upon surrender of a certificate therefor properly endorsed or upon receipt of proper transfer instructions from the registered holder of uncertificated shares or by such holder’s duly authorized attorney and upon compliance with appropriate procedures for transferring shares in uncertificated form, unless waived by the Corporation.
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Section 5.03. Authority for Additional Rules Regarding Transfer. The Board of Directors shall have the power and authority to make all such rules and regulations as they may deem expedient concerning the issue, transfer and registration of certificated or uncertificated shares of the stock of the Corporation, as well as for the issuance of new certificates in lieu of those which may be lost or destroyed, and may require of any stockholder requesting replacement of lost or destroyed certificates, bond in such amount and in such form as they may deem expedient to indemnify the Corporation, and/or the transfer agents, and/or the registrars of its stock against any claims arising in connection therewith.
Section 5.04. Lost, Stolen or Destroyed Stock Certificates. The Corporation may issue a new stock certificate in the place of any certificate previously issued by it, alleged to have been lost, stolen or destroyed, and the Corporation may require the owner of the lost, stolen or destroyed certificate, or such owner’s legal representative, to agree to indemnify the Corporation and/or to give the Corporation a bond sufficient to indemnify it, against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate.
Section 5.05 Consideration for Shares. Subject to applicable law and the Certificate of Incorporation, shares of stock may be issued for such consideration, having in the case of shares with par value a value not less than the par value thereof, and to such persons, as determined from time to time by the Board of Directors. The consideration may consist of any tangible or intangible property or benefit to the Corporation including, but not limited to, cash, promissory notes, services performed, contracts for services to be performed or other securities. Shares may not be issued until the full amount of the consideration has been paid, unless upon the face or back of each certificate issued to represent any partly paid shares of capital stock or upon the books and records of the Corporation in the case of partly paid uncertificated shares, there will have been set forth the total amount of the consideration to be paid therefor and the amount paid thereon up to and including the time said certificate representing certificated shares or said uncertificated shares are issued.
ARTICLE VI
INDEMNIFICATION OF OFFICERS, DIRECTORS AND OTHERS
Section 6.01. General. The Corporation shall, to the fullest extent permitted by law as it presently exists or may hereafter be amended, indemnify and hold harmless any person who was or is made a party or is threatened to be made a party to or is otherwise involved in any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation), by reason of the fact that he or she is or was a director or officer of the Corporation or, while a director or officer of the Corporation, is or was serving at the request of the Corporation as a director, officer, employee, fiduciary or agent of another corporation, partnership, limited liability company, joint venture, trust or other enterprise, including service with respect to an employee benefit plan, whether the basis of such proceeding is alleged action in an official capacity as a director or officer in any other capacity while serving as a director or officer, against all expenses, liability and loss (including attorneys’ fees and related disbursements, judgments, fines, excise taxes or penalties under the Employee Retirement Income Security Act of 1974, as amended from time to time (“ERISA”), and any other penalties and amounts paid or to be paid in settlement) actually and reasonably incurred by the person in connection with such action, suit or proceeding if the person acted in good faith and in a manner the person reasonably believed to be in or not opposed to the best interests of the Corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe the person’s conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which the person reasonably believed to be in or not opposed to the best interests of the Corporation and, with respect to any criminal action or proceeding, have reasonable cause to believe that the person’s conduct was unlawful.
Section 6.02. Actions by or in the Right of the Corporation. The Corporation shall, to the fullest extent permitted by law as it presently exists or may hereafter be amended, indemnify and hold harmless any person who was or is made a party or is threatened to be made a party to or is otherwise involved in any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that the person is or was a director or officer of the Corporation or, while a director or officer of the Corporation, is or was serving at the request of the Corporation as a director, officer, employee, fiduciary or agent of another corporation, partnership, limited liability company, joint venture, trust or other enterprise, including service with respect to an
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employee benefit plan, whether the basis of such proceeding is alleged action in an official capacity as a director or officer in any other capacity while serving as a director or officer, against all expenses, liability and loss (including attorneys’ fees and related disbursements, judgments, fines, excise taxes or penalties under ERISA, and any other penalties and amounts paid or to be paid in settlement) actually and reasonably incurred by the person in connection with the defense or settlement of such action or suit if the person acted in good faith and in a manner the person reasonably believed to be in or not opposed to the best interests of the Corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the Court of Chancery of the State Delaware or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery of the State Delaware or such other court shall deem proper.
Section 6.03. Indemnification Against Expenses. To the extent that a present or former director or officer of the Corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Sections 6.01 and 6.02 hereof, or in defense of any claim, issue or matter therein, such person shall be indemnified against expenses (including attorneys’ fees) actually and reasonably incurred by such person in connection therewith.
Section 6.04. Board Determinations. Any indemnification under Sections 6.01 and 6.02 hereof (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the present or former director or officer is proper in the circumstances because the person has met the applicable standard of conduct set forth in Sections 6.01 and 6.02 hereof. Such determination shall be made with respect to a person who is a director or officer at the time of such determination: (a) by a majority vote of the directors who were not parties to such action, suit or proceeding, even though less than a quorum; (b) by a committee of such directors designated by majority vote of such directors, even though less than a quorum; (c) if there are no such disinterested directors, by independent counsel in a written opinion to the Board of Directors; or (d) by the stockholders.
Section 6.05. Advancement of Expenses. Expenses (including attorneys’ fees) incurred by an officer or director of the Corporation in defending any civil, criminal, administrative or investigative action, suit or proceeding may be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that such person is not entitled to be indemnified by the Corporation as authorized by law or in this Section. Such expenses (including attorneys’ fees) incurred by former directors and officers or other employees and agents of the Corporation or persons serving at the request of the Corporation as directors, officers, employees or agents of another corporation, partnership, limited liability company, joint venture, trust or other enterprise may be so paid upon such terms and conditions, if any, as the Corporation deems appropriate.
Section 6.06. Nonexclusive. The indemnification and advancement of expenses provided by, or granted pursuant to, this Article VI shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under the Certificate of Incorporation, these Bylaws, or under any agreement, vote of stockholders or disinterested directors or otherwise, both as to action in such person’s official capacity and as to action in another capacity while holding office, and shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, officer, employee or agent of the Corporation and shall inure to the benefit of the heirs, executors and administrators of such a person.
Section 6.07. Insurance. The Corporation may purchase and maintain insurance on its own behalf and on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as director, officer, employee or agent of another corporation, partnership, limited liability company, joint venture, trust or other enterprise, including service with respect to an employee benefit plan, against any expense, liability or loss asserted against such person and incurred by such person in any such capacity or arising out of such person’s status as such, whether or not the Corporation would have the power to indemnify such person against such liability under the provisions of Delaware Law, the Certificate of Incorporation or this Article VI.
Section 6.08. Other Indemnification. The Corporation may, by action of the Board of Directors, provide indemnification to employees and agents of the Corporation with the same or lesser scope and effect as the foregoing indemnification of directors and officers.
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Section 6.09. Certain Definitions. For purposes of this Article VI, (a) references to “the Corporation” shall include, in addition to the Corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued would have had power and authority to indemnify its directors, officers, employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, limited liability company, joint venture, trust or other enterprise, shall stand in the same position under the provisions of this Article VI with respect to the resulting or surviving corporation as such person would have with respect to such constituent corporation if its separate existence had continued; (b) references to “fines” shall include any excise taxes assessed on a person with respect to an employee benefit plan; (c) references to “serving at the request of the Corporation” shall include any service as a director, officer, employee or agent of the Corporation which imposes duties on, or involves services by, such director, officer, employee or agent with respect to any employee benefit plan, its participants, or beneficiaries; and (d) a person who acted in good faith and in a manner such person reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner “not opposed to the best interests of the Corporation.”
Section 6.10. Repeal or Modification of Indemnification. All rights to indemnification and to the advancement of expenses under this Article VI shall be deemed to be a contract between the Corporation and each director, officer, employee, fiduciary or agent who serves or served in such capacity at any time while this Article VI is in effect. Any repeal or modification of this Article VI or any repeal or modification of relevant provisions of Delaware Law or any other applicable laws shall not in any way diminish any rights to indemnification and advancement of expenses of such indemnitee or the obligations of the Corporation arising hereunder with respect to any proceeding arising out of, or relating to, any actions, transactions or facts occurring prior to the final adoption of such repeal or modification.
ARTICLE VII
GENERAL PROVISIONS
Section 7.01. Fixing the Record Date.
(a) In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing such record date is adopted by the Board of Directors, and which record date shall not be more than sixty (60) nor less than ten (10) days before the date of such meeting. If no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, that the Board of Directors may in its discretion or as required by law fix a new record date for the adjourned meeting.
(b) In order that the Corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than sixty (60) days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto.
(c) In order that the Corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting, the Board of Directors may fix a record date, which record date shall not precede the date on which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall not be more than ten (10) days after the date upon which the resolution fixing the record date is adopted by the Board of Directors. Any stockholder of record seeking to have the stockholders authorize or take corporate action by written consent shall, by written notice to the Secretary, request the Board of Directors to fix a record date. The Board of Directors shall promptly, but in all events within ten (10) days after the date on which such a request is received, adopt a resolution fixing the record date. If no record date has been fixed by the Board of Directors within ten (10) days of the date upon which such a request is received, the record date for determining stockholders entitled to consent to
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corporate action in writing without a meeting, when no prior action by the Board of Directors is required by applicable law, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the Corporation by delivery to its registered office in the State of Delaware, its principal place of business, or any officer or agent of the Corporation having custody of the book in which proceedings of stockholders’ meeting are recorded. Delivery made to the Corporation’s registered office shall be by hand or by certified or registered mail, return receipt requested. If no record date has been fixed by the Board of Directors and prior action by the Board of Directors is required by applicable law, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the date on which the Board of Directors adopts the resolution taking such prior action.
Section 7.02. Dividends. Subject to limitations contained in Delaware Law and the Certificate of Incorporation, the Board of Directors may declare and pay dividends upon the shares of capital stock of the Corporation, which dividends may be paid either in cash, in property or in shares of the capital stock of the Corporation.
Section 7.03. Year. Except as otherwise determined by the Board of Directors, the fiscal year of the Corporation shall commence on January 1 and end on December 31 of each year.
Section 7.04. Corporate Seal. The corporate seal shall have inscribed thereon the name of the Corporation, the year of its organization and the words “Corporate Seal, Delaware”. The seal may be used by causing it or a facsimile thereof to be impressed, affixed or otherwise reproduced.
Section 7.05. Voting of Stock Owned by the Corporation. The Board of Directors may authorize any person, on behalf of the Corporation, to attend, vote at and grant proxies to be used at any meeting of stockholders of any corporation (except this Corporation) in which the Corporation may hold stock.
Section 7.06. Amendments. These Bylaws or any of them may be altered, amended or repealed, or new Bylaws may be made, by the stockholders entitled to vote thereon at any annual or special meeting thereof or by the Board of Directors. Unless a higher percentage is required by the Certificate of Incorporation as to any matter that is the subject of these Bylaws, all such amendments must be approved by the affirmative vote of the holders of not less than a majority of the total voting power of all outstanding securities of the Corporation then entitled to vote generally in the election of directors, voting together as a single class, or by a majority of the Whole Board.
Section 7.07. Headings. Section or paragraph headings are inserted herein only for convenience of reference and shall not be considered in the construction of any provision hereof.
ARTICLE VIII
CHOICE OF FORUM
Unless the Corporation consents in writing to the selection of an alternative forum, to the fullest extent permitted by law, the federal district courts of the United States shall be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act of 1933, as amended. Any person or entity purchasing or otherwise acquiring or holding any interest in any security of the Corporation shall be deemed to have notice of and consented to the provisions of this Article VIII.
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Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO RULE 13a-14(a)/15d-14(a) OF THE SECURITIES AND EXHANGE ACT OF 1934, AS AMENDED,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Chad Richison, certify that:
Date: November 3, 2022 |
By: |
/s/ Chad Richison |
|
|
Chad Richison |
|
|
Chief Executive Officer |
|
|
(Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO RULE 13a-14(a)/15d-14(a) OF THE SECURITIES AND EXHANGE ACT OF 1934, AS AMENDED,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Craig E. Boelte, certify that:
Date: November 3, 2022 |
By: |
/s/ Craig E. Boelte |
|
|
Craig E. Boelte |
|
|
Chief Financial Officer |
|
|
(Principal Financial Officer) |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q for the quarter ended September 30, 2022 (the “Form 10-Q”) of Paycom Software, Inc. (the “Company”), the undersigned hereby certify in their capacities as Chief Executive Officer and Chief Financial Officer, respectively, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to their knowledge:
Date: November 3, 2022 |
By: |
/s/ Chad Richison |
|
|
Chad Richison |
|
|
Chief Executive Officer |
|
|
(Principal Executive Officer) |
|
|
|
Date: November 3, 2022 |
By: |
/s/ Craig E. Boelte |
|
|
Craig E. Boelte |
|
|
Chief Financial Officer |
|
|
(Principal Financial Officer) |
The foregoing certifications are not deemed “filed” with the Securities and Exchange Commission for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and are not to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date hereof, regardless of any general incorporation language contained in such filing.