Paycom Software, Inc. (Form: 10-Q, Received: 11/06/2015 17:02:17)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2015

£	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, including zip code)

(405) 722-6900

(Registrant’s telephone number, including area code)

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 S No £

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes S No £

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer £		Accelerated filer	£

Non-accelerated filer S	(Do not check if a smaller reporting company)	Smaller reporting company	£

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes £ No S

As of November 2, 2015, the registrant had 59,105,143 shares of common stock outstanding, including 1,985,472 shares of restricted stock.

Paycom Software, Inc.

PART I – FINANCIAL INFORMATION

Item 1.

Financial Statements (Unaudited)

Condensed Consolidated Balance Sheets as of September 30, 2015 and December 31, 2014

Condensed Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2015 and 2014

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2015 and 2014

Notes to the Condensed Consolidated Financial Statements

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Item 4.

Controls and Procedures

PART II – OTHER INFORMATION

Item 1.

Legal Proceedings

Item 1A.

Risk Factors

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

Item 5.

Other Information

Item 6.

Exhibits

Signatures

PART I. FINANCI AL INFORMATION

Item 1. Financial Statements

Paycom Software, Inc.

Condensed Consolidated Balance Sheets

(in thousands, except share amounts)

(unaudited)

	September 30,		December 31,
	2015		2014
Assets
Current assets:
Cash and cash equivalents	$	48,547	$	25,144
Restricted cash		-		371
Accounts receivable		3,397		2,794
Prepaid expenses		2,426		1,952
Inventory		639		195
Income tax receivable		-		935
Deferred tax assets, net		316		1,445
Current assets before funds held for clients		55,325		32,836
Funds held for clients		615,895		660,557
Total current assets		671,220		693,393
Property and equipment, net		53,674		47,919
Deposits and other assets		913		645
Goodwill		51,889		51,889
Intangible assets, net		3,886		5,096
Total assets	$	781,582	$	798,942
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	3,853	$	3,042
Income tax payable		1,608		-
Accrued commissions and bonuses		4,509		5,080
Accrued payroll and vacation		4,106		1,582
Deferred revenue		3,329		2,535
Current portion of long-term debt		875		855
Accrued expenses and other current liabilities		7,401		5,121
Current liabilities before client funds obligation		25,681		18,215
Client funds obligation		615,895		660,557
Total current liabilities		641,576		678,772
Deferred tax liabilities, net		464		3,107
Long-term deferred revenue		22,657		16,802
Long-term debt, less current portion		25,206		26,123
Total long-term liabilities		48,327		46,032
Commitments and contingencies
Stockholders' equity:
Common stock, $0.01 par value (100,000,000 shares authorized, 57,050,684 and 53,832,782 shares issued and outstanding at September 30, 2015 and December 31, 2014, respectively)		571		538
Additional paid in capital		69,657		67,937
Retained earnings		21,451		5,663
Total stockholders' equity		91,679		74,138
Total liabilities and stockholders' equity	$	781,582	$	798,942

See accompanying notes to the unaudited condensed consolidated financial statements.

Paycom Software, Inc.

Condensed Consolidated Statements of Income

(in thousands, except per share and share amounts)

(unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
		2015			2014			2015			2014
Revenues
Recurring	$	54,233		$	35,910		$	156,404		$	105,030
Implementation and other		1,107			688			3,131			1,859
Total revenues		55,340			36,598			159,535			106,889
Cost of revenues
Operating expenses		7,964			5,798			22,569			17,847
Depreciation and amortization		945			638			2,642			1,876
Total cost of revenues		8,909			6,436			25,211			19,723
Administrative expenses
Sales and marketing		23,774			14,856			61,744			44,237
Research and development		2,349			1,059			6,123			2,878
General and administrative		11,996			8,410			34,076			25,816
Depreciation and amortization		1,457			1,159			4,180			3,322
Total administrative expenses		39,576			25,484			106,123			76,253
Total operating expenses		48,485			31,920			131,334			95,976
Operating income		6,855			4,678			28,201			10,913
Interest expense		(343	)		(338	)		(1,067	)		(3,079	)
Loss on early repayment of debt		-			-			-			(4,044	)
Other income, net		98			39			150			1,395
Income before income taxes		6,610			4,379			27,284			5,185
Provision for income taxes		2,763			1,689			11,496			2,028
Net income	$	3,847		$	2,690		$	15,788		$	3,157
Net income per share, basic	$	0.07		$	0.05		$	0.28		$	0.06
Net income per share, diluted	$	0.07		$	0.05		$	0.27		$	0.06
Weighted average shares outstanding:
Basic		57,050,684			51,056,462			56,287,979			49,040,344
Diluted		58,367,830			52,978,051			57,771,680			51,223,048

See accompanying notes to the unaudited condensed consolidated financial statements.

Paycom Software, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

	Nine Months Ended September 30,
	2015			2014
Cash flows from operating activities
Net income	$	15,788		$	3,157
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		6,822			5,198
Amortization of debt issuance costs		108			-
Amortization of debt discount		-			67
Write off of debt issuance costs		-			4,051
Net loss on disposition of property and equipment		15			-
Stock-based compensation expense		1,721			362
Employee stock purchase plan compensation expense		86			-
Net change in derivative liability		-			(1,107	)
Deferred taxes, net		(1,514	)		1,414
Changes in operating assets and liabilities:
Accounts receivable		(592	)		237
Prepaid expenses		(474	)		(94	)
Inventory		245			195
Deposits and other assets		(336	)		(145	)
Accounts payable		(850	)		(3,044	)
Income taxes, net		2,543			298
Accrued commissions and bonuses		(571	)		(1,030	)
Accrued payroll and vacation		2,524			(422	)
Deferred revenue		6,649			4,662
Accrued expenses and other current liabilities		1,965			(498	)
Net cash provided by operating activities		34,129			13,301
Cash flows from investing activities
Decrease in funds held for clients		44,662			62,146
Decrease in restricted cash		371			1
Purchases of property and equipment		(10,150	)		(11,948	)
Net cash provided by investing activities		34,883			50,199
Cash flows from financing activities
Proceeds from issuance of long-term debt		-			6,539
Principal payments on long-term debt		(897	)		(65,442	)
Decrease in client funds obligation		(44,662	)		(62,146	)
Proceeds from initial public offering, net of offering costs		-			62,843
Payment of debt issuance costs		(50	)		-
Capital impact of reorganization		-			(183	)
Net cash used in financing activities		(45,609	)		(58,389	)
Change in cash and cash equivalents		23,403			5,111
Cash and cash equivalents
Beginning of period		25,144			13,362
End of period	$	48,547		$	18,473

See accompanying notes to the unaudited condensed consolidated financial statements.

Paycom Software, Inc.

Notes to the Condensed Consolidated Financial Statements

(unaudited)

1.	ORGANIZATION AND DESCRIPTION OF BUSINESS

Description of Business

Paycom Software, Inc. (“Software”) and its wholly-owned subsidiaries (collectively, the “Company”) is a leading provider of comprehensive, cloud-based human capital management (“HCM”) software 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 life cycle 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.

The Reorganization

Software and its wholly-owned subsidiary, Payroll Software Merger Sub, LLC (“Merger Sub”) were formed as Delaware entities on October 31, 2013 and December 23, 2013, respectively, in anticipation of an initial public offering and were wholly-owned subsidiaries of Paycom Payroll Holdings, LLC (“Holdings”) prior to December 31, 2013.

On January 1, 2014, we consummated a reorganization pursuant to which (i) affiliates of Welsh, Carson, Anderson & Stowe X, L.P. (“WCAS X”), WCAS Capital Partners IV, L.P. (“WCAS Capital IV”) and WCAS Management Corporation (collectively, “WCAS”), contributed WCAS Paycom Holdings, Inc. (“WCAS Holdings”) and WCAS CP IV Blocker, Inc. (“CP IV Blocker”), which collectively owned all of the Series A Preferred Units of Holdings, to Software in exchange for shares of common stock of Software and (ii) the owners of outstanding Series B Preferred Units of Holdings contributed their Series B Preferred Units of Holdings to Software in exchange for shares of common stock of Software. Immediately after these contributions, Merger Sub merged with and into Holdings with Holdings surviving the merger. Upon consummation of the merger, the remaining holders of outstanding common and incentive units of Holdings received shares of common stock and restricted stock of Software for their common and incentive units by operation of Delaware law and Holdings’ ownership interest in Software was cancelled. Outstanding common units, Series B Preferred Units and incentive units of Holdings, WCAS Holdings and CP IV Blocker were contributed to Software in exchange for, or converted into, an aggregate of 45,708,573 shares of common stock and 8,121,101 shares of restricted stock of Software. Prior to the reorganization, WCAS Holdings held Series C Preferred Units of Holdings in the amount of $46.2 million and WCAS Holdings had a note payable to a related party due April 3, 2017, in the amount of $46.2 million. Following these transactions, all outstanding Series C Preferred Units were eliminated in an intercompany transaction between Holdings and WCAS Holdings, and we assumed the 14% Note due 2017 issued by WCAS Holdings (the “2017 Note”). Following the reorganization, Software became a holding company with its principal assets being the Series B Preferred Units of Holdings and the outstanding capital stock of WCAS Holdings and CP IV Blocker (collectively, the “2014 Reorganization”).

Initial Public Offering

On April 21, 2014, we closed our initial public offering whereby an aggregate of 7,641,750 shares of our common stock were sold to the public (including 4,606,882 shares of common stock issued and sold by us and 3,034,868 shares of common stock sold by certain selling stockholders) at a public offering price of $15.00 per share. We did not receive any proceeds from the sale of shares by the selling stockholders. The total gross proceeds we received from the offering were $69.1 million. After deducting underwriting discounts and commissions and offering expenses payable by us, the aggregate net proceeds we received totaled approximately $62.8 million. We used all of the net proceeds from the offering, together with approximately $3.3 million from existing cash, for the repayment in full of the 2017 Note and the 10% Senior Note due 2022 issued by us to WCAS Capital IV.

Follow-On Public Offering

On January 21, 2015, we closed our follow-on public offering, whereby 6,422,750 shares of our common stock were sold to the public by certain selling stockholders at a public offering price of $22.50 per share. We did not receive any proceeds from the sale of these shares.

Paycom Software, Inc.

Notes to the Condensed Consolidated Financial Statements

(unaudited)

Registered Block Trade Transaction s

On May 20, 2015, we closed an underwritten secondary offering of 8,000,000 shares of our common stock by WCAS X, WCAS Capital IV, each of our executive officers and certain other selling stockholders at a public offering price of $36.25 per share. We did not receive any proceeds from the sale of these shares.

On September 15, 2015, we closed an underwritten secondary offering of 4,500,000 shares of our common stock by WCAS X, WCAS Capital IV, each of our executive officers and certain other selling stockholders at a public offering price of $37.95 per share. On September 23, 2015, the underwriter exercised its option to purchase an additional 675,000 shares from WCAS X and WCAS Capital IV. We did not receive any proceeds from the sale of these shares.

Basis of Presentation

The accompanying unaudited interim condensed consolidated financial statements 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 Securities and Exchange Commission (“SEC”) regarding interim financial statements that permit reduced disclosure for interim periods. In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments necessary to fairly present our Condensed Consolidated Balance Sheets as of September 30, 2015 and December 31, 2014, our Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2015 and 2014 and our Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2015 and 2014. Such adjustments are of a normal recurring nature. In addition to these normal adjustments, on the Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2014, we combined the accounts “Income tax receivable” and “Income tax payable” and the accounts “Deferred tax assets” and “Deferred tax liabilities” in order to conform to the current period presentation. The information in this Quarterly Report on Form 10-Q should be read in conjunction with our Annual Report on Form 10-K that was filed with the SEC on February 26, 2015. The results of operations for the three and nine months ended September 30, 2015 are not necessarily indicative of the results expected for the full fiscal year.

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, contingencies, the useful life for 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 circumstances. As such, actual results could materially differ from these estimates.

Summary of Significant Accounting Policies

Our significant accounting policies are discussed in “Note 2. Summary of Significant Accounting Policies” in our audited consolidated financial statements for the year ended December 31, 2014, included in the Annual Report on Form 10-K that was filed with the SEC on February 26, 2015.

Employee Stock Purchase Plan

An award issued under the Paycom Software, Inc. Employee Stock Purchase Plan (the “ESPP”) is classified as a share based liability and recorded at the fair value of the award. Expense is recognized, net of estimated forfeitures, on a straight line basis over the requisite service period.

Recently Issued Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued authoritative guidance which included a comprehensive new revenue recognition model that requires revenue to be recognized in a manner to depict the transfer of goods or services to a customer at an amount that reflects the consideration expected to be received in exchange for those goods or services. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 31, 2016, and early adoption is not permitted. In April 2015, the FASB proposed a one year deferral of the effective date of the new revenue recognition standard for public and non-public entities reporting under U.S. GAAP and on July 9, 2015, the FASB approved the one year deferral.

Paycom Software, Inc.

Notes to the Condensed Consolidated Financial Statements

(unaudited)

The effective date of the amended standard will begin in periods beginning after December 15, 2017. We are currently evaluating the impact that the standard will have on our conden sed consolidated financial statements.

In June 2014, the FASB issued authoritative guidance for share-based payments which requires that a performance target that affects vesting, and that could be achieved after the requisite service period, be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant date fair value of the award. This update further clarifies that compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable for the period(s) in which the requisite service has already been rendered. The new guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2015. Accordingly, the standard is effective for us on January 1, 2016. We do not anticipate that the adoption of this standard will have a material impact on our condensed consolidated financial statements.

In April 2015, the FASB issued authoritative guidance for intangibles related to internally developed software. The new guidance will assist entities in evaluating the accounting for fees paid by a customer in a cloud computing arrangement. The new guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2015. Accordingly, the standard is effective for us on January 1, 2016. We do not anticipate that the adoption of this standard will have a material impact on our condensed consolidated financial statements.

In April 2015, the FASB issued authoritative guidance which simplifies the presentation of debt issuance costs. Under the new guidance, debt issuance costs related to a recognized debt liability will be presented in the Condensed Consolidated Balance Sheets as a direct deduction from the carrying amount of the debt liability. The new guidance is effective for public entities for fiscal years, and interim periods within those years, beginning after December 15, 2015. Accordingly, the standard is effective for us on January 1, 2016. We do not anticipate that the adoption of this standard will have a material impact on our condensed consolidated financial statements. Debt issuance costs are currently included on the Condensed Consolidated Balance Sheets as an asset.

In July 2015, the FASB issued authoritative guidance which simplifies the measurement of inventory. Under the new guidance, an entity should measure inventory (as defined within the scope of the guidance) at the lower of cost or new realizable value. The new guidance applies to all inventory except inventory measured using last-in, first-out (LIFO) or the retail inventory method. Net realizable value is defined as the estimated selling price in the ordinary course of business, less reasonably predicable costs of completion, disposal and transportation. The new guidance is effective for public companies for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. Accordingly, the standard is effective for us on January 1, 2017. We do not anticipate that the adoption of this standard will have a material impact on our condensed consolidated financial statements.

2.	PROPERTY AND EQUIPMENT

Property and equipment and associated accumulated depreciation and amortization were as follows:

	September 30,			December 31,
	2015			2014
Property and equipment
Buildings	$	28,154		$	28,154
Software and capitalized software costs		11,997			8,671
Computer equipment		10,027			7,638
Rental clocks		8,131			6,596
Furniture, fixtures and equipment		5,049			4,361
Vehicles		421			421
Leasehold improvements		307			174
		64,086			56,015
Less: accumulated depreciation and amortization		(22,699	)		(17,089	)
		41,387			38,926
Land		8,993			8,993
Construction in process		3,294			-
Property and equipment, net	$	53,674		$	47,919

Paycom Software, Inc.

Notes to the Condensed Consolidated Financial Statements

(unaudited)

Depreciation and amortization expense for property and equipment, net, was $2.0 million and $5.6 million for the three and nine months ended September 30, 2015, respectively. Depreciation and amortization expense for property and equipment, net, was $1.4 million and $4.0 million for the three and nine months ended September 30, 2014, respectively.

For the three and nine months ended September 30, 2015 and 2014, we paid interest costs of $0.3 million and $0.9 million, respectively. We did not capitalize any interest costs during the three months ended September 30, 2015 and 2014 and for the nine months ended September 30, 2015. We capitalized $0.4 million of interest costs during the nine months ended September 30, 2014.

We capitalize computer software development costs related to software developed for internal use in accordance with Accounting Standards Codification (“ASC”) Topic 350-40. During the three and nine months ended September 30, 2015, we capitalized $1.1 million and $2.7 million of computer software development costs related to software developed for internal use, respectively. During the three and nine months ended September 30, 2014, we capitalized $0.6 million and $1.3 million of computer software development costs related to software developed for internal use, respectively.

3.	GOODWILL AND INTANGIBLE ASSETS, NET

Goodwill represents the excess of cost over our net tangible and identified intangible assets. We had goodwill of $51.9 million as of September 30, 2015 and December 31, 2014. We have selected June 30 as our annual goodwill impairment testing date and determined there was no impairment as of June 30, 2015. For the year ended December 31, 2014, there were no indicators of impairment.

All of our intangible assets are considered to have finite lives and, as such, are subject to amortization. The components of intangible assets were as follows:

	September 30, 2015
	Weighted Avg. Remaining				Accumulated
	Useful Life		Gross		Amortization			Net
	(Years)
Intangibles:
Customer relationships		1.8	$	13,997	$	(11,547	)	$	2,450
Trade name		6.8		3,194		(1,758	)		1,436
Total			$	17,191	$	(13,305	)	$	3,886

	December 31, 2014
	Weighted Avg. Remaining			Accumulated
	Useful Life	Gross		Amortization			Net
	(Years)
Intangibles:
Customer relationships	2.5	$	13,997	$	(10,498	)	$	3,499
Trade name	7.5		3,194		(1,597	)		1,597
Total		$	17,191	$	(12,095	)	$	5,096

The weighted average remaining useful life of our intangible assets was 3.6 years as of September 30, 2015. Amortization of intangible assets for the three and nine months ended September 30, 2015 and 2014 was $0.4 million and $1.2 million, respectively.

4.	FUNDS HELD FOR CLIENTS AND CLIENT FUNDS OBLIGATION

As part of our payroll and tax filing application, we collect funds for federal, state and local employment taxes from clients, handle applicable regulatory tax filings, correspondence and amendments, remit the funds to appropriate tax agencies, and handle other employer-related services. Amounts collected by us from clients for their federal, state and local employment taxes earn interest during the interval between receipt and disbursement, as we invest these funds in money market funds and certificates of deposit. These collections from clients are typically disbursed from one to 30 days after receipt, with some funds being held for up to 120 days.

Paycom Software, Inc.

Notes to the Condensed Consolidated Financial Statements

(unaudited)

These i nvestments are shown in the Condensed Consolidated Balance Sheets as “ Funds held for clients ” , and the offsetting liability for the tax filings is shown as “ Client funds obligation ” . As of September 30 , 2015 and December 31, 2014, the funds held for clients were invested in demand deposits, certificates of deposit and money market funds. The interest earned on these funds is included in “ Other income , net ” on the Condensed Consolidated Statements of Income.

5.	LONG-TERM DEBT

Our long-term debt consisted of the following:

	September 30, 2015			December 31, 2014
Term note to bank due May 30, 2021 ⁽¹⁾	$	26,081		$	26,978
Total long-term debt (including current portion)		26,081			26,978
Less: Current portion		(875	)		(855	)
Total long-term debt, net	$	25,206		$	26,123

(1)

Our outstanding indebtedness consisted of a term note under the 2021 Consolidated Loan due to Kirkpatrick Bank (the “2021 Consolidated Loan”) with an outstanding principal balance of $26.1 million and $27.0 million as of September 30, 2015 and December 31, 2014, respectively. The 2021 Consolidated Loan matures on May 30, 2021. Under the 2021 Consolidated Loan, interest is payable monthly and accrues at a fixed rate of 4.75% per annum. The 2021 Consolidated Loan is secured by a mortgage covering our headquarters and certain personal property relating to our headquarters.

The 2021 Consolidated Loan includes certain financial covenants, including maintaining a fixed charge coverage ratio of EBITDA to fixed charges (defined as current maturities of long-term debt, interest expense, rent expense and distributions), of greater than 1.2 to 1.0, which is measured on a quarterly basis. We were in compliance with all of the covenants as of September 30, 2015.

As of September 30, 2015, the carrying value of our total long-term debt, including current portion, was $26.1 million, which approximated its fair value. As of December 31, 2014, the carrying value of our total long-term debt, including current portion, was $27.0 million, which approximated its fair value. The fair value of fixed rate long-term debt is estimated based on the borrowing rates currently available to us for bank loans with similar terms and maturities.

On May 13, 2015, we entered into a loan agreement with Kirkpatrick Bank to finance the expansion of our headquarters (the “Construction Loan”). The Construction Loan allows for the borrowing of a maximum aggregate principal amount equal to the lesser of (i) $11.0 million or (ii) 80% of the appraised value of the constructed property. We did not have any outstanding borrowings under the Construction Loan as of September 30, 2015. The Construction Loan matures on the earlier of the completion of construction or November 13, 2016, with variable interest accruing at the greater of (i) the prime rate, plus 50 basis points or (ii) 4.0%. At maturity, the outstanding principal balance of the Construction Loan will be automatically converted to a 78-month term loan. The term loan will accrue fixed interest at the prevailing 7/20 London Interbank Offered Rate swap interest rate that is in effect as of the commencement date, plus 225 basis points.

6.	EMPLOYEE SAVINGS PLAN AND EMPLOYEE STOCK PURCHASE PLAN

Our employees that are over the age of 21 and have completed ninety (90) days of service are eligible to participate in our 401(k) plan. We have made a Qualified Automatic Contribution Arrangement (“QACA”) election, whereby we make a matching contribution for 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 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 will be 100% vested after two years of employment from the date of hire. If an employee terminates service prior to completing two years of employment, the employee will not be vested in these QACA matching contributions. The discretionary contributions vest 100% after two years of employment from the date of hire. Matching contributions amounted to $0.6 million and $1.8 million for the three and nine months ended September 30, 2015, respectively. Matching contributions amounted to $0.4 million and $1.3 million for the three and nine months ended September 30, 2014, respectively.

Paycom Software, Inc.

Notes to the Condensed Consolidated Financial Statements

(unaudited)

On May 5, 2015, our stockholders approved the ESPP. The ESPP allow s , at the beginning of each offering period, eligible employees to elect to contribute, through payroll deductions, up to 10% of their compensation , subject to an annual per employee maximum, to purchase shares of the Company’s common stock at a price of 85% of the fair market value of the shares on the exercise date. Each offering period of the ESPP lasts six months and the maximum number of shares that may be acquired by a participa nt during each offering period is 2,000 shares. The shares reserved for purposes of the ESPP are shares we purchase in the open market and the maximum number of shares of the Company’s common stock that may be acquired by participants under the ESPP is 2,000,000 shares . During the three months ended September 30, 2015, eligible employees purchased 24,935 shares of the Company’s common stock under the ESPP . Compensation expense related to the ESPP is recognized on a straight-line basis over the requisit e service period. Our compensation expense related to the ESPP was $0. 1 million and $ 0.2 million for the three and nine months ended September 30, 2015 , respectiv ely .

7.	FAIR VALUE OF FINANCIAL INSTRUMENTS

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, funds held for clients and client funds obligation approximates fair value because of the short-term nature of the instruments.

We did not have any financial instruments that were measured on a recurring basis at either September 30, 2015 or December 31, 2014.

8.	EARNINGS PER SHARE

Basic earnings per share (“EPS”) is based on the weighted average number of shares of common stock outstanding for the period. Diluted EPS is computed in a similar manner to basic EPS 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. 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. The outstanding restricted shares of stock that were issued on July 8, 2015, are considered participating securities.

Paycom Software, Inc.

Notes to the Condensed Consolidated Financial Statements

(unaudited)

The following is a reconciliation of net income and the shares of common stock used in the computation of basic and diluted net income per share (dollars in thousands):

	Three Months Ended					Nine Months Ended
	September 30, 2015			September 30, 2014		September 30, 2015			September 30, 2014
Numerator:
Net income	$	3,847		$	2,690	$	15,788		$	3,157
Less: income allocable to participating securities		(49	)		—		(205	)		—
Income allocable to common shares	$	3,798		$	2,690	$	15,583		$	3,157
Add back: undistributed earnings allocable to participating securities		49			—		205			—
Less: undistributed earnings reallocated to participating securities		(49	)		—		(200	)		—
Numerator for diluted earnings per share	$	3,798		$	2,690	$	15,588		$	3,157
Denominator:
Weighted average common shares outstanding		50,315,455			51,056,462		50,315,455			49,040,344
Adjustment for vested restricted stock		6,735,229			-		5,972,524			-
Shares for calculating basic EPS		57,050,684			51,056,462		56,287,979			49,040,344
Dilutive effect of unvested restricted stock		1,317,146			1,921,589		1,483,701			2,182,704
Shares for calculating diluted EPS		58,367,830			52,978,051		57,771,680			51,223,048
Net income per share:
Basic	$	0.07		$	0.05	$	0.28		$	0.06
Diluted	$	0.07		$	0.05	$	0.27		$	0.06

9.	STOCKHOLDERS’ EQUITY AND INCENTIVE COMPENSATION

On January 1, 2014, we consummated the 2014 Reorganization, pursuant to which (i) affiliates of WCAS contributed WCAS Holdings and CP IV Blocker, which collectively owned all of the Series A Preferred Units of Holdings, to Software in exchange for shares of common stock of Software and (ii) the owners of outstanding Series B Preferred Units of Holdings contributed their Series B Preferred Units of Holdings to Software in exchange for shares of common stock of Software. Immediately after these contributions, Merger Sub merged with and into Holdings with Holdings surviving the merger. Upon consummation of the merger, the remaining holders of outstanding common and incentive units of Holdings received shares of common stock of Software for their common and incentive units by operation of Delaware law and Holdings’ ownership interest in Software was cancelled. Outstanding common units, Series B Preferred Units and WCAS Holdings and CP IV Blocker were contributed to Software in exchange for, or converted into, 45,708,573 shares of common stock and 8,121,101 shares of restricted stock of Software.

The shares of restricted stock were issued subject to various vesting conditions. A portion of the restricted stock was subject to time-based vesting conditions, while a portion was subject to market-based vesting conditions. The market-based vesting conditions were based on our total enterprise value exceeding certain specified thresholds. Following these transactions, all outstanding Series C Preferred Units were eliminated in an intercompany transaction between Holdings and WCAS Holdings, and we assumed the 2017 Note. As a result of the 2014 Reorganization, we recorded a one-time reclassification of $29.3 million of accumulated deficit to additional paid in capital on January 1, 2014. Following the 2014 Reorganization, Software became a holding company with its principal assets being the Series B Preferred Units of Holdings and the outstanding capital stock of WCAS Holdings and CP IV Blocker.

Compensation expense for restricted stock awards with time-based vesting conditions was measured based on the fair value of the award on the grant date and recognized over the requisite service period on a straight-line basis. Compensation expense relating to the issuance of restricted stock with market-based vesting conditions was measured based upon the fair value of the award on the grant date and recognized on a straight-line basis over the vesting period based upon the probability that the vesting conditions would be met. For restricted stock with market-based vesting conditions, 50% of the restricted stock vested upon reaching a total enterprise

Paycom Software, Inc.

Notes to the Condensed Consolidated Financial Statements

(unaudited)

value of $1.4 billion on December 1, 2014 and the remaining 50% of the restricted stock vested upon reaching a total enterprise value of $1.8 billion on March 2, 2015 . The associated compensation expense adjusted for actual forfeiture s was $0. 2 million for the nine months ended September 30 , 2015 for the vesting of the restricted s tock with market-based vesting conditions on March 2, 2015 . T he total net compensation expense for the vesting of the restricted stock with time and market-based vesting conditions was $0.3 million for the nine months ended September 30, 2015.

There was $0.3 million and $0.7 million of total unrecognized compensation cost related to unvested time-based restricted stock outstanding as of September 30, 2015 and December 31, 2014, respectively. The unrecognized compensation cost is expected to be recognized over a weighted average period of 2.1 years as of September 30, 2015.

On May 5, 2015, our stockholders approved the Paycom Software, Inc. Annual Incentive Plan (the “Incentive Plan”). The Incentive Plan provides for the payment of incentive compensation that is not subject to certain federal income tax deduction limitations. Participation in the Incentive Plan is limited to certain of our employees designated by the Compensation Committee of the Board of Directors.

On July 8, 2015, we issued an aggregate of 741,931 shares of restricted stock to each of our executive officers and certain non-executive employees under the Paycom Software, Inc. 2014 Long-Term Incentive Plan (the “LTIP”), of which 477,200 shares are subject to market-based vesting conditions and 264,731 shares are subject to time-based vesting conditions. The fair value of each share of restricted stock with market-based vesting conditions is estimated on the grant date using a Monte Carlo simulation model. This model considers a range of assumptions related to volatility, risk-free interest rate, expected term and expected dividend yield. Expected volatilities used in the model are based on historical volatilities of comparable guideline companies until a sufficient trading history in the Company’s common stock exists. The annual volatility assumed in the model was 26%. An expected dividend yield of 0% is applied given that the Company has not paid any dividends. The risk-free interest rate of 2.2% is derived from the implied yield available on 10 year U.S. Treasury securities with a remaining term equivalent to that of the applicable shares as of the valuation date. The expected term represents the period that the applicable shares of restricted stock are expected to be outstanding. The Company determined the expected term assumption based on the vesting terms and contractual terms of the restricted stock. The Company is required to estimate forfeitures and only record compensation costs for those awards that are expected to vest.

Restricted stock with market-based vesting conditions will vest 50% when the Company reaches a total enterprise value of $2.65 billion and 50% when the Company reaches a total enterprise value of $3.5 billion. Restricted stock with time-based vesting conditions will vest over periods of three or five years. Compensation expense for restricted stock awards with time-based vesting conditions was measured based on the fair value of the underlying shares of restricted stock on the grant date (which was equal to the closing price of our common stock of $33.33 on the grant date) and will be recognized over the requisite service periods on a straight-line basis. Compensation expense for restricted stock awards with market-based vesting conditions was measured based on the fair value of the underlying shares of restricted stock on the grant date, which was $21.76 or $27.24 depending on the enterprise value target. Compensation expense for restricted stock with market-based vesting conditions will be recognized on a straight-line basis over the requisite service period of 2.3 to 4.2 years. Our compensation expense related to the LTIP was $1.4 million for both the three and nine months ended September 30, 2015. There was $17.1 million of unrecognized compensation cost, net of estimated forfeitures, related to unvested restricted stock outstanding as of September 30, 2015. The unrecognized compensation cost is expected to be recognized over a weighted average period of 2.2 years as of September 30, 2015.

We do not receive any cash proceeds from the vesting of our restricted stock. The capitalized cash stock-based compensation expense related to software developed for internal use of $31 thousand for the nine months ended September 30, 2015 and $4 thousand for the year ended December 31, 2014, was included in software and capitalized software costs in “Property and equipment, net” in our Condensed Consolidated Balance Sheets as of September 30, 2015 and December 31, 2014, respectively.

10.	RELATED-PARTY TRANSACTIONS

For the three and nine months ended September 30, 2015 and 2014, we paid rent on our Dallas office space in the amounts of $0.1 million and $0.2 million, respectively. The Dallas office building is owned by 417 Oakbend, LP, a Texas limited partnership. Our Chief Sales Officer owns a .01% general partnership interest and a 10.49% limited partnership interest in 417 Oakbend, LP.

We incurred $1.0 million of registration and legal fees in connection with the underwritten secondary offerings in 2015, which were charged to general and administrative expense and from which we did not receive any proceeds. The payment of such fees included expenses on behalf of related parties and was approved by the Company’s Audit Committee.

Paycom Software, Inc.

Notes to the Condensed Consolidated Financial Statements

(unaudited)

In April 2014, we paid off the balance of the 2017 Note that was issued by WCAS Holdings and was payable to WCAS X, a related party, with proceeds from our initial public offering.

11.	COMMITMENTS AND CONTINGENCIES

Employment Agreements

We have employment agreements with certain of our executive officers. The agreements allow for annual compensation, participation in executive benefit plans, and performance-based cash bonuses.

Funding Agreement

In March 2010, we entered into a funding agreement with the Oklahoma City Economic Development Trust (the “Trust”) and the City of Oklahoma City. The Trust provided $2.0 million worth of certain public infrastructure improvements related to our newly constructed principal executive offices in northwest Oklahoma City. In exchange for the infrastructure improvements provided, we agreed to create at least 492 jobs over a five year period, with an average first year salary in excess of $37 thousand and make a minimum capital investment in the project of at least $15.0 million. We further agreed that we would be responsible for repayment of any amount that was not offset by earned job creation payments. As of December 31, 2014, we had fulfilled our obligation for these job creation payments.

Legal Proceedings

On September 23, 2014, National Financial Partners Corp. (“NFP”) filed a complaint against us in the United States District Court for the Northern District of Illinois (the “District Court”) (Civil Action No. 1:14-cv-07424). The complaint alleged trademark infringement, unfair competition, deceptive trade practices, consumer fraud and deceptive business practices related to the adoption and use of our logo and sought preliminary and permanent injunctions prohibiting us from continued infringement as well as money damages, including an accounting for sales and profits, attorneys’ fees and disgorgement of profits. NFP also moved for an order preliminarily enjoining us from using our logo. On April 30, 2015, we filed an opposition to NFP’s motion for preliminary injunction. On May 7 and 8, 2015, the District Court held a hearing on NFP’s motion for a preliminary injunction. On June 10, 2015, the District Court entered an order granting a preliminary injunction in favor of NFP and thereafter issued its preliminary injunction on June 16, 2015. On June 16, 2015, we filed an appeal of the District Court’s order and preliminary injunction to the United States Circuit Court of Appeals for the Seventh Circuit (Case No. 15-2289). We further sought a stay of the preliminary injunction pending the appeal. On June 30, 2015, the District Court granted our motion for a stay pending appeal. On June 25, 2015, we filed an offer of judgment seeking to resolve all pending claims between the parties and terminate the action with the payment of $20 thousand by Paycom Payroll, LLC and an agreement to change our logo within 60 days. Our offer of judgment was accepted by NFP and the District Court entered a judgment pursuant to the offer of judgment on July 6, 2015, terminating the District Court action. The Seventh Circuit Court of Appeals case was terminated on July 8, 2015.

We are involved in various other 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.

Operating Leases and Deferred Rent

We lease office space under several noncancellable operating leases with contractual terms expiring from 2015 to 2021. Minimum rent expenses are recognized over the lease term. The lease term is defined as the fixed noncancellable term of the lease plus all periods, if any, for which failure to renew the lease imposes a penalty on us in an amount that a renewal appears, at the inception of the lease, to be reasonably assured. When a lease contains a predetermined fixed escalation of the minimum rent, we recognize the related rent expense on a straight-line basis and record the difference between the recognized rent expense and the amount payable under the lease as a liability. As of September 30, 2015 and December 31, 2014, we had $0.8 million and $0.8 million, respectively, recorded as a liability for deferred rent.

Paycom Software, Inc.

Notes to the Condensed Consolidated Financial Statements

(unaudited)

Rent expense under operating leases for the three and nine months ended September 30, 2015 , was $ 1.1 million and $ 3 . 3 million, respectively. Rent expense under operating leases for the three and nine months ended September 30, 2014, was $ 1.0 million and $ 2 .4 million, respectively .

12.	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. Significant management judgment is required in estimating operating income in order to determine our effective income tax rate. The estimated effective income tax rate was 41.79% and 42.13% for the three and nine months ended September 30, 2015, respectively. The estimated effective income tax rate was 38.57% and 39.11% for the three and nine months ended September 30, 2014, respectively. The higher effective income tax rate for the three and nine months ended September 30, 2015 is primarily the result of an increase in the applicable statutory federal tax rate.

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 a narrative from the perspective of our management 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 condensed consolidated financial statements and notes thereto for the three and nine months ended September 30, 2015, (ii) the consolidated financial statements and notes thereto for the year ended December 31, 2014 included in our Annual Report on Form 10-K (the “Form 10-K”) filed with the Securities and Exchange Commission (the “SEC”) on February 26, 2015 and (iii) the discussion under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Form 10-K. 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, other than share and per share amounts, are presented 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 that are subject to risks and uncertainties. These statements are based on the beliefs of our management as well as the assumptions made by, and information currently available to us. These statements include, but are not limited to, statements about our strategies, plans, objectives, expectations, intentions, expenditures, assumptions and other statements contained in this report that are not historical facts. When used in this document, words such as “anticipate”, “believe”, “estimate”, “expect”, “intend”, “may”, “plan” and “project” and similar expressions as they relate to us are intended to identify forward-looking statements. These statements include, without limitation, that our growth will generally mirror any improvements in the labor market, that we will continue with our plan and ability to open additional sales offices in the future, that our existing cash and cash equivalents will be sufficient to meet our working capital and capital expenditure needs over the next 12 months, our ability to create additional jobs at our corporate headquarters, our ability to expand our corporate headquarters within an expected timeframe and our expectation of increasing our capital expenditures and investment activity as our business grows.

These statements reflect our current views with respect to future events, which are not guarantees of future performance, and involve risks and uncertainties that are difficult to project. Further, certain forward-looking statements are based upon assumptions as to future events that may not prove to be accurate. Actual results could differ materially from those discussed in or implied by forward-looking statements as a result of various factors, including those discussed in the Form 10-K, and in particular the section entitled “Item 1A. Risk Factors.” We disclaim any obligation to update any forward looking statements, whether as a result of new information, future events or otherwise. You should not rely upon forward-looking statements as predictions of future events or place undue reliance on such statements.

Overview

We are a leading provider of comprehensive, cloud-based HCM software delivered as Software-as-a-Service. We provide functionality and data analytics that businesses need to manage the complete employment life cycle 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 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 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, 2015.

Our revenues are primarily generated through our sales force that solicits new clients and our client relations representatives who sell new applications to existing clients. We have 36 sales teams located in 23 states and plan to open additional sales offices to further expand our presence in the U.S. market. During the nine months ended September 30, 2015, we opened five new sales offices, with one sales office located in each of Brooklyn, Cincinnati, Kansas City, Nashville and Pittsburgh. Our continued growth depends on attracting new clients through geographic expansion, further penetration of our existing markets and the introduction of new applications to our existing client base. We also expect a portion of our growth to generally mirror any improvements in the labor market. Our principal marketing programs include telemarketing and email campaigns, search engine marketing methods and tradeshows.

Recent Developments

Registered Block Trade Transactions

On May 20, 2015, we closed an underwritten secondary offering of 8,000,000 shares of our common stock by Welsh, Carson, Anderson & Stowe X, L.P. (“WCAS X”), WCAS Capital Partners IV, L.P. (“WCAS Capital IV”) each of our executive officers and certain other selling stockholders at a public offering price of $36.25 per share. We did not receive any proceeds from the sale of these shares.

On September 15, 2015, we closed an underwritten secondary offering of 4,500,000 shares of our common stock by WCAS X, WCAS Capital Partners IV, each of our executive officers and certain other selling stockholders at a public offering price of $37.95 per share. On September 23, 2015, the underwriter exercised its option to purchase an additional 675,000 shares from WCAS X and WCAS Capital IV. We did not receive any proceeds from the sale of these shares.

Trends and Opportunities

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. As a result of our evolving revenue mix, coupled with the unique client benefits that our solution provides ( e.g. , enabling our clients to scale the number of HCM applications that they use on an as-needed basis), we are presented with a variety of opportunities and challenges.

We generate revenues from (i) fixed amounts charged per billing period plus a fee per employee or transaction processed or (ii) fixed amounts charged per billing period. We do not require clients to enter into long-term contractual commitments with us. Our billing period varies by client based on when they pay their employees, which is either weekly, bi-weekly, semi-monthly or monthly.

For the nine months ended September 30, 2015 and 2014, our gross margins were approximately 84% and 82%, respectively. Historically, our total gross margin gradually improved over time as (i) our gross margin for our other HCM applications was higher than our gross margin for payroll processing, (ii) we added additional clients, (iii) our existing clients deployed additional HCM applications and (iv) we reduced our cost of revenues as a percentage of total revenues. We do not expect our gross margins to continue to grow at the same rate as they did between 2014 and 2015, but rather to remain relatively consistent from quarter-to-quarter.

Key Metrics

In addition to the accounting principles generally accepted in the United States of America (“U.S. GAAP”) metrics that we regularly monitor, we also monitor the following metrics to evaluate our business, measure our performance and identify trends affecting our business:

	Three months ended September 30,				Nine months ended September 30,
	2015		2014		2015		2014
Key Performance Indicators:
Sales Teams (at period end)	36		31		36		31
Annualized New Recurring Revenue	$	31,764	$	14,927	$	68,399	$	39,017

Sales Teams . We monitor our sales professionals by the number of sales teams at period end and each team is comprised of approximately six to nine sales professionals. Certain larger metropolitan areas can support more than one sales team. We believe that the number of sales teams is an indicator of potential revenue for future periods.

Annualized New Recurring Revenue . While we do not enter into long-term contractual commitments with our clients, we monitor annualized new recurring revenue as we believe it is an indicator of potential revenue for future periods. Annualized new recurring revenue is an estimate based on the annualized amount of the first full month of revenue attributable to new clients that were added or existing clients that purchased additional applications during the period presented. Annualized new recurring revenue only includes revenues from clients who have used our solution for at least one month during the period. Because annualized new recurring revenue is only recorded after a client uses our solution for one month, it includes revenue that has been recognized in historical periods.

Results of Operations

Three months ended September 30, 2015 as compared to the three months ended September 30, 2014.

The following tables set forth selected Condensed Consolidated Statements of Income data and such data as a percentage of total revenues for the periods presented:

	Three Months Ended September 30,
		2015			2014		% Change
Revenues
Recurring	$	54,233		$	35,910			51	%
Implementation and other		1,107			688			61	%
Total revenues		55,340			36,598			51	%
Cost of revenues
Operating expenses		7,964			5,798			37	%
Depreciation and amortization		945			638			48	%
Total cost of revenues		8,909			6,436			38	%
Administrative expenses
Sales and marketing		23,774			14,856			60	%
Research and development		2,349			1,059			122	%
General and administrative		11,996			8,410			43	%
Depreciation and amortization		1,457			1,159			26	%
Total administrative expenses		39,576			25,484			55	%
Total operating expenses		48,485			31,920			52	%
Operating income		6,855			4,678			47	%
Interest expense		(343	)		(338	)		1	%
Other income, net		98			39			151	%
Income before income taxes		6,610			4,379
Provision for income taxes		2,763			1,689
Net income	$	3,847		$	2,690

	Three Months Ended September 30,
	2015			2014
Revenues
Recurring		98.0	%		98.1	%
Implementation and other		2.0	%		1.9	%
Total revenues		100.0	%		100.0	%
Cost of revenues
Operating expenses		14.4	%		15.8	%
Depreciation and amortization		1.7	%		1.7	%
Total cost of revenues		16.1	%		17.5	%
Administrative expenses
Sales and marketing		43.0	%		40.6	%
Research and development		4.2	%		2.9	%
General and administrative		21.6	%		23.0	%
Depreciation and amortization		2.6	%		3.2	%
Total administrative expenses		71.4	%		69.7	%
Total operating expenses		87.5	%		87.2	%
Operating income		12.5	%		12.8	%
Interest expense		-0.6	%		-0.9	%
Other income, net		0.2	%		0.1	%
Income before income taxes		12.1	%		12.0	%
Provision for income taxes		5.0	%		4.6	%
Net income		7.1	%		7.4	%

Revenues

Total revenues were $55.3 million for the three months ended September 30, 2015 as compared to $36.6 million for the three months ended September 30, 2014, representing an increase of $18.7 million, or 51%. The increase in total revenues was primarily due to the addition of clients in mature sales offices (those offices that have been open for at least 24 months) as well as contributions from newer offices that are reaching maturity. Implementation and other revenues, a component of total revenues, increased to $1.1 million for the three months ended September 30, 2015 from $0.7 million for the three months ended September 30, 2014, an increase of $0.4 million, or 61%.

A combination of other factors also contributed to the increase in revenues, including the addition of new clients in more recently opened sales offices and the introduction and sale of additional applications to our existing clients. The increase in revenues was also due to an increase in the average revenue per client. Revenues attributable to new applications introduced in 2015 were not a material factor in the increase in revenue for this quarter, although we expect these applications to represent a more significant portion of our revenues in the future.

Cost of Revenues

Cost of revenues was $8.9 million for the three months ended September 30, 2015 as compared to $6.4 million for the three months ended September 30, 2014, representing an increase of $2.5 million, or 38%. The increase in cost of revenues was due primarily to a $1.4 million increase in employee costs related to additional operating personnel, as well as a $0.2 million increase in shipping fees and a $0.2 million increase in automated clearinghouse fees, each of which related to increased sales. In addition, depreciation and amortization expense increased by $0.3 million, or 48%, primarily due to technology developed and other additional assets purchased.

Administrative Expenses

Total administrative expenses were $39.6 million for the three months ended September 30, 2015 as compared to $25.5 million for the three months ended September 30, 2014, representing an increase of $14.1 million, or 55%. During the three months ended September 30, 2015, sales and marketing expense increased by $8.9 million from the comparable prior year period, primarily due to a $4.4 million increase in commissions and bonuses related to increased sales, a $3.2 million increase in employee-related expenses and a $0.3 million increase in recruiting expenses, in each case resulting from an increase in the number of sales personnel, a $0.4 million increase in advertising costs related to rebranding expenses necessitated by settlement of the trademark infringement and other related claims alleged by National Financial Partners Corp. (“NFP”) and a $0.3 million increase in building rent and other building expenses related to new offices and additional leased space in existing offices.

During the three months ended September 30, 2015, research and development expense increased by $1.3 million from the comparable prior year period, primarily due to an increase in the number of research and development personnel and related bonus expense. We anticipate an increase in research and development expense over time as we continue to increase the number of research and development personnel. During the three months ended September 30, 2015, general and administrative expense increased by $3.6 million from the comparable prior year period, primarily due to a $2.5 million increase in employee-related expenses and a $0.7 million increase in accounting, compliance and insurance expense. During the three months ended September 30, 2015, depreciation and amortization expense increased by $0.3 million from the comparable prior year period, or 26%, primarily due to additional technology developed and other assets purchased.

Expenditures for software developed or obtained for internal use are capitalized and amortized over a three-year period on a straight-line basis. The timing of these capitalized expenditures may affect the amount of research and development expenses in any given period. The table below sets forth the amounts of capitalized and expensed research and development expenses for the three months ended September 30, 2015 and 2014:

	Three Months Ended
	September 30, 2015		September 30, 2014
Capitalized portion of research and development	$	1,063	$	580
Expensed portion of research and development		2,349		1,059
Total research and development costs	$	3,412	$	1,639

Nine months ended September 30 , 2015 as compared to the nine months ended September 30 , 2014.

The following tables set forth selected Condensed Consolidated Statements of Income data and such data as a percentage of total revenues for the periods presented:

	Nine Months Ended September 30,
		2015			2014		% Change
Revenues
Recurring	$	156,404		$	105,030			49	%
Implementation and other		3,131			1,859			68	%
Total revenues		159,535			106,889			49	%
Cost of revenues
Operating expenses		22,569			17,847			26	%
Depreciation and amortization		2,642			1,876			41	%
Total cost of revenues		25,211			19,723			28	%
Administrative expenses
Sales and marketing		61,744			44,237			40	%
Research and development		6,123			2,878			113	%
General and administrative		34,076			25,816			32	%
Depreciation and amortization		4,180			3,322			26	%
Total administrative expenses		106,123			76,253			39	%
Total operating expenses		131,334			95,976			37	%
Operating income		28,201			10,913			158	%
Interest expense		(1,067	)		(3,079	)		-65	%
Loss on early repayment of debt		-			(4,044	)		-100	%
Other income, net		150			1,395			-89	%
Income before income taxes		27,284			5,185
Provision for income taxes		11,496			2,028
Net income	$	15,788		$	3,157

	Nine Months Ended September 30,
	2015			2014
Revenues
Recurring		98.0	%		98.3	%
Implementation and other		2.0	%		1.7	%
Total revenues		100.0	%		100.0	%
Cost of revenues
Operating expenses		14.1	%		16.7	%
Depreciation and amortization		1.7	%		1.8	%
Total cost of revenues		15.8	%		18.5	%
Administrative expenses
Sales and marketing		38.8	%		41.4	%
Research and development		3.8	%		2.7	%
General and administrative		21.3	%		24.2	%
Depreciation and amortization		2.6	%		3.1	%
Total administrative expenses		66.5	%		71.4	%
Total operating expenses		82.3	%		89.9	%
Operating income		17.7	%		10.2	%
Interest expense		-0.7	%		-2.9	%
Loss on early repayment of debt		0.0	%		-3.8	%
Other income, net		0.0	%		1.3	%
Income before income taxes		17.0	%		4.8	%
Provision for income taxes		7.2	%		1.9	%
Net income		9.8	%		2.9	%

R evenues

Total revenues were $159.5 million for the nine months ended September 30, 2015 as compared to $106.9 million for the nine months ended September 30, 2014, representing an increase of $52.6 million, or 49%. The increase in total revenues was primarily due to the addition of clients in mature sales offices (those offices that have been open for at least 24 months) as well as contributions from newer offices that are reaching maturity. Implementation and other revenues, a component of total revenues, increased to $3.1 million for the nine months ended September 30, 2015 from $1.9 million for the nine months ended September 30, 2014, an increase of $1.2 million, or 68%.

A combination of other factors also contributed to the increase in revenues, including an increase in the number of tax form filings on behalf of clients, the addition of new clients in more recently opened sales offices and the introduction and sale of additional applications to our existing clients. The increase in revenues was also due to an increase in the average revenue per client. Revenues attributable to new applications introduced in 2015 were not a material factor in the increase in revenue for the nine months ended September 30, 2015, although we expect these applications to represent a more significant portion of our revenues in the future.

Cost of Revenues

Cost of revenues was $25.2 million for the nine months ended September 30, 2015 as compared to $19.7 million for the nine months ended September 30, 2014, representing an increase of $5.5 million, or 28%. The increase in cost of revenues was due primarily to a $3.5 million increase in employee costs related to additional operating personnel, as well as a $0.5 million increase in shipping fees related to increased sales. In addition, depreciation and amortization expense increased by $0.8 million, or 41%, primarily due to technology developed and other additional assets purchased.

Administrative Expenses

Total administrative expenses were $106.1 million for the nine months ended September 30, 2015 as compared to $76.3 million for the nine months ended September 30, 2014, representing an increase of $29.8 million, or 39%. During the nine months ended September 30, 2015, sales and marketing expense increased by $17.5 million from the comparable prior year period, primarily due to an $8.2 million increase in commissions and bonuses resulting from increased sales, a $7.3 million increase in employee-related expenses, a $0.7 million increase in recruiting and training expenses related to an increase in the number of sales personnel and a $0.8 million increase in advertising costs related to rebranding expenses necessitated by settlement of the trademark infringement and other related claims alleged by NFP.

During the nine months ended September 30, 2015, research and development expense increased by $3.2 million from the comparable prior year period, primarily due to an increase in the number of research and development personnel and related bonus expense. We anticipate an increase in research and development expense over time as we continue to increase the number of research and development personnel. During the nine months ended September 30, 2015, general and administrative expense increased by $8.3 million from the comparable prior year period, primarily due to a $4.7 million increase in employee-related expenses and a $2.1 million increase in accounting, compliance and insurance expense, a $0.4 million increase in telecom expenses related to increased headcount and a $0.1 million increase in director expenses. During the nine months ended September 30, 2015, depreciation and amortization expense increased by $0.9 million from the comparable prior year period, or 26%, primarily due to additional technology developed and other assets purchased.

	Nine Months Ended
	September 30, 2015		September 30, 2014
Capitalized portion of research and development	$	2,733	$	1,317
Expensed portion of research and development		6,123		2,878
Total research and development costs	$	8,856	$	4,195

Liquidity and Capital Resources

As of September 30, 2015, our principal sources of liquidity were cash and cash equivalents totaling $48.5 million. Our cash and cash equivalents are comprised primarily of deposit accounts and money market funds. We believe our existing cash and cash equivalents will be sufficient to meet our working capital and capital expenditure needs over at least the next 12 months.

We have historically financed our operations from cash flows generated from operations, cash from the sale of equity securities and borrowings under our consolidated loans. Since inception, we have raised $125.1 million of equity capital, $ 62.8 million o f which was received from the net proceeds raised in our initial public offering that closed in April 2014. We incurred related party debt as part of corporate reorganizations that occurred in April 2012 and January 2014. Such debt has since been repaid. We have also incurred indebtedness to finance the expansio n of our corporate headquarters in Oklahoma City. The first expansion of our corporate headquarters was completed in June 2014 and we are currently constructing an approximately $13.4 million new corporate building adjacent to our corporate headquarters that we expect to be completed by mid-2016. In connection with the expansion currently in progress, we entered into a loan agreement with Kirkpatrick Bank on May 13, 2015 (the “Construction Loan”) and are negotiating a local incentive package with the Oklahoma City Economic Development Trust worth up to approximately $1.2 million, depending on the number of new jobs we create for local employees over the next two years and the average annual salary level for such local employees. We have the ability to borrow approximately $11 million u nder the Construction Loan prior to the completion of construction to finance th e expansion of our corporate headquarters.

As of September 30, 2015, our only outstanding indebtedness consisted of the 2021 Consolidated Loan due to Kirkpatrick Bank that matures on May 30, 2021 (the “2021 Consolidated Loan”) and the Construction Loan, each of which is discussed in more detail below.

2021 Consolidated Loan . As of September 30, 2015, we had a term note under the 2021 Consolidated Loan with an outstanding principal amount of $26.1 million. Under the 2021 Consolidated Loan, interest is payable monthly and accrues at a fixed rate of 4.75% per annum. The 2021 Consolidated Loan is secured by a mortgage covering our headquarters and certain personal property relating to our headquarters.

We are required to comply with certain financial and non-financial covenants under the 2021 Consolidated Loan, including maintaining a fixed coverage ratio of EBITDA to fixed charges (defined as current maturities of long-term debt, interest expense, rent expense and distributions) greater than 1.2 to 1.0, which is measured on a quarterly basis. As of September 30, 2015, we were in compliance with all of the covenants under the 2021 Consolidated Loan.

Pursuant to the terms of the 2021 Consolidated Loan, until amounts under the 2021 Consolidated Loan are repaid, we may not, subject to certain exceptions: (i) create any mortgages or liens, (ii) make any loans, advances or extensions of credit with any affiliate or enter into any other transaction with any affiliate, (iii) lease any mortgaged property, (iv) make any distributions as long as an event of default exists, (v) make any material change in methods of accounting, (vi) enter into any sale and leaseback arrangement, (vii) amend, modify, restate, cancel or terminate our organizational documents, (viii) sell, transfer or convey any mortgaged property or (ix) incur funded outside debt.

An event of default under the 2021 Consolidated Loan includes, among other events, (i) failure to pay principal or interest when due, (ii) breaches of certain covenants, (iii) any failure to meet the required financial covenants and (iv) an institution of a bankruptcy, reorganization, liquidation or receivership.

Construction Loan . On May 13, 2015, we entered into the Construction Loan with Kirkpatrick Bank to finance the expansion of our headquarters. The Construction Loan allows for the borrowing of a maximum aggregate principal amount equal to the lesser of (i) $11.0 million or (ii) 80% of the appraised value of the constructed property. We did not have any outstanding borrowings under the Construction Loan as of September 30, 2015. The Construction Loan matures on the earlier of the completion of construction or November 13, 2016, with variable interest accruing at the greater of (i) the prime rate, plus 50 basis points or (ii) 4.0%.

At maturity, the outstanding principal balance of the Construction Loan will be automatically converted into a 78-month term loan. The term loan will accrue fixed interest at the prevailing 7/20 London Interbank Offered Rate swap interest rate that is in effect as of the commencement date, plus 225 basis points.

Cash Flow Analysis

Our cash flows from operating activities have historically been significantly impacted by profitability, our investment in sales and marketing to drive growth, implementation revenue received but deferred 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 revenue and related cash flows or to raise additional capital could have a material adverse effect on our ability to meet our liquidity needs and achieve our business objectives.

As part of our payroll and payroll tax filing services, we collect funds for federal, state and local employment taxes from our clients which we remit to the appropriate t ax agencies. We invest these funds in certificates of deposit and money market funds from which we earn interest income during the period between their receipt and disbursement.

As our business grows, we expect our capital expenditures and our investment activity to continue to increase. 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.

The following table summarizes the consolidated statement of cash flows for the nine months ended September 30, 2015 and 2014:

	Nine Months Ended September 30,						% Change
	2015			2014			2015 vs 2014
Net cash provided by (used in):
Operating activities	$	34,129		$	13,301			157	%
Investing activities		34,883			50,199			-31	%
Financing activities		(45,609	)		(58,389	)		-22	%
Change in cash and cash equivalents	$	23,403		$	5,111

Operating Activities

Net cash provided by operating activities for the nine months ended September 30, 2015 was $34.1 million. Net cash provided by operating activities consisted primarily of net income of $15.8 million, depreciation and amortization of $6.8 million, an increase in deferred revenue of $6.6 million, an increase in accrued payroll and vacation of $2.5 million, an increase in income taxes, net of $2.5 million, an increase in accrued expenses and other current liabilities of $2.0 million and stock based compensation expense of $1.7 million, partially offset by a change in deferred taxes, net, of $1.5 million, a decrease in accounts payable of $0.9 million, a decrease in accrued commissions and bonuses of $0.6 million, an increase in accounts receivable of $0.6 million and an increase in prepaid expenses of $0.5 million.

Net cash provided by operating activities for the nine months ended September 30, 2014 was $13.3 million. Net cash provided by operating activities consisted primarily of net income of $3.2 million, depreciation and amortization of $5.2 million, an increase in deferred revenue of $4.7 million, a write off of debt issuance costs of $4.1 million and deferred taxes, net, of $1.4 million, offset by a decrease in accounts payable of $3.0 million, a net change in derivative liability of $1.1 million and a decrease in accrued commissions and bonuses of $1.0 million.

Investing Activities

Net cash provided by investing activities for the nine months ended September 30, 2015 was $34.9 million and resulted from a decrease in funds held for clients of $44.7 million and a decrease in restricted cash of $0.4 million, offset by purchases of property and equipment of $10.2 million.

Net cash provided by investing activities for the nine months ended September 30, 2014 was $50.2 million and resulted primarily from a decrease in funds held for clients of $62.1 million, offset by purchases of property and equipment of $11.9 million.

Financing Activities

Net cash used in financing activities for the nine months ended September 30, 2015 was $45.6 million. Net cash used in financing activities primarily resulted from a decrease in the client funds obligation of $44.7 million and principal payments on long-term debt of $0.9 million.

Net cash used in financing activities for the nine months ended September 30, 2014 was $58.4 million. Net cash used in financing activities primarily resulted from principal payments on long-term debt of $65.4 million and a decrease in the client funds obligation of $62.1 million, offset by proceeds from the initial public offering of $62.8 million and proceeds from the issuance of long-term debt of $6.5 million.

Contractual Obligations

Our principal commitments primarily consist of long-term debt and leases for office space. For additional information regarding our long-term debt and our commitments and contingencies, see “Note 5. Long Term Debt” and “Note 11. Commitments and Contingencies” in the Form 10-K and in the notes to our unaudited condensed consolidated financial statements included elsewhere in this report. Other than the Construction Loan discussed above and in the associated notes to the condensed consolidated financial statements, 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.

Off-Balance Sheet Arrangements

As of September 30, 2015, we did not have any off-balance sheet arrangements.

Critical Accounting Policies and Estimates

Our condensed consolidated financial statements and accompanying notes have been prepared in accordance with U.S. GAAP. The preparation of these condensed 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 in our critical accounting policies and estimates in the preparation of our condensed consolidated financial statements for the nine months ended September 30, 2015, as compared to those disclosed in the Form 10-K.

Non-GAAP Financial Measures

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

EBITDA, 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. EBITDA, Adjusted EBITDA and non-GAAP net income have limitations as analytical tools, and when assessing our operating performance, you should not consider EBITDA, Adjusted EBITDA or non-GAAP net income in isolation, or as a substitute for net income or other Condensed Consolidated Statements of Income data prepared in accordance with U.S. GAAP. EBITDA, Adjusted EBITDA and non-GAAP net income may not be comparable to similar titled measures of other companies and other companies may not calculate such measures in the same manner as we do.

The following tables reconcile net income t o EBITDA and Adjusted EBITDA and net income to non-GAAP net income (dollars in thousands) :

	Three months ended September 30,				Nine months ended September 30,
	2015		2014		2015		2014
Consolidated statements of income data:
Net income	$	3,847	$	2,690	$	15,788	$	3,157
Interest expense		343		338		1,067		3,079
Provision for income taxes		2,763		1,689		11,496		2,028
Depreciation and amortization		2,402		1,797		6,822		5,198
EBITDA		9,355		6,514		35,173		13,462
Stock-based compensation expense		1,432		88		1,721		362
Transaction expenses		-		-		685		1,363
Net loss on early repayment of debt		-		-		-		4,044
Adjusted EBITDA	$	10,787	$	6,602	$	37,579	$	19,231

	Three months ended September 30,				Nine months ended September 30,
	2015		2014		2015		2014
Consolidated statements of income data:
Net income	$	3,847	$	2,690	$	15,788	$	3,157
Tax adjusted stock-based compensation expense ⁽¹⁾		830		51		997		211
Tax adjusted transaction expenses ⁽¹⁾		39		-		630		795
Tax adjusted net loss on early repayment of debt ⁽¹⁾		-		-		-		2,358
Non-GAAP net income	$	4,716	$	2,741	$	17,415	$	6,521

Non-GAAP net income per share, basic	$	0.08	$	0.05	$	0.31	$	0.13
Non-GAAP net income per share, diluted	$	0.08	$	0.05	$	0.30	$	0.13

Weighted average shares outstanding:
Basic		57,050,684		51,056,462		56,287,979		49,040,344
Diluted		58,367,830		52,978,051		57,771,680		51,223,048

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Sensitivity

We had cash and cash equivalents totaling $48.5 million as of September 30, 2015. We consider all highly liquid debt instruments purchased with a maturity of three months or less and money market mutual funds to be cash equivalents. These amounts are invested primarily in deposit accounts and money market funds. The cash and cash equivalents are held for working capital purposes. Our investments are made for capital preservation purposes. 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. Fixed rate securities may have their market value adversely affected by 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 expectation 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.

As of September 30, 2015, we did not believe that an increase or decrease in interest rates of 100-basis points would have 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, 2015, 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, 2015 to ensure that information required to be disclosed by us in this report 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 disclosure.

We believe, however, that a controls system, no matter how well designed and operated, cannot provide absolute 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

Commencing January 1, 2016, we will cease to be an “emerging growth company.” Accordingly, management will be required to make the first annual assessment of internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 (“Section 404”) commencing with our Annual Report on Form 10-K with respect to the fiscal year ending December 31, 2015 (the “2015 Annual Report”). The Company’s independent registered public accounting firm will be required to formally attest to the effectiveness of our internal control over financial reporting in our 2015 Annual Report.

We are currently conducting an extensive evaluation of our internal control over financial reporting in preparation for the required certification under Section 404.

There have been no changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II

OTHER INFORMATION

Item 1. Legal Proceedings

On September 23, 2014, NFP filed a complaint against us in the United States District Court for the Northern District of Illinois (the “District Court”) (Civil Action No. 1:14-cv-07424). The complaint alleged trademark infringement, unfair competition, deceptive trade practices, consumer fraud and deceptive business practices related to the adoption and use of our logo and sought preliminary and permanent injunctions prohibiting us from continued infringement as well as money damages, including an accounting for sales and profits, attorneys’ fees and disgorgement of profits. NFP also moved for an order preliminarily enjoining us from using our logo. On April 30, 2015, we filed an opposition to NFP’s motion for preliminary injunction. On May 7 and 8, 2015, the District Court held a hearing on NFP’s motion for a preliminary injunction. On June 10, 2015, the District Court entered an order granting a preliminary injunction in favor of NFP and thereafter issued its preliminary injunction on June 16, 2015. On June 16, 2015, we filed an appeal of the District Court’s order and preliminary injunction to the United States Circuit Court of Appeals for the Seventh Circuit (Case No. 15-2289). We further sought a stay of the preliminary injunction pending the appeal. On June 30, 2015, the District Court granted our motion for a stay pending appeal. On June 25, 2015, we filed an offer of judgment seeking to resolve all pending claims between the parties and terminate the action with the payment of $20 thousand by Paycom Payroll, LLC and an agreement to change our logo within 60 days. Our offer of judgment was accepted by NFP and the District Court entered a judgment pursuant to the offer of judgment on July 6, 2015, terminating the District Court action. The Seventh Circuit Court of Appeals case was terminated on July 8, 2015.

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 26, 2015, except as set forth below:

Commencing January 1, 2016, we will no longer be an “emerging growth company,” and the reduced disclosure requirements applicable to emerging growth companies will no longer apply to us. The 2015 Annual Report will reflect this change.

We are currently an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012. Because the market value of our common stock held by non-affiliates exceeded $700 million as of June 30, 2015, commencing January 1, 2016 we will be deemed a large accelerated filer and, accordingly, will no longer qualify as an emerging growth company. As a large accelerated filer, we will be subject to certain disclosure requirements that apply to other public companies but have not previously applied to us due to our status as an emerging growth company. These requirements include:

compliance with the auditor attestation requirements in the assessment of our internal control over financial reporting;

compliance with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements;

full disclosure obligations regarding executive compensation; and

compliance with the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.

As of September 21, 2015, we ceased to be a “controlled company” as defined in the NYSE Listed Company Manual and, as a result, no longer qualify for exemptions from certain corporate governance requirements. If we are unable to comply with applicable corporate governance requirements, we may become subject to enforcement actions by the NYSE.

Prior to September 21, 2015, the parties to the Amended and Restated Stockholders Agreement dated March 10, 2014, which include WCAS X, WCAS Capital IV, WCAS Management Corporation, Chad Richison, Shannon Rowe, William X. Kerber, III, Jeffrey D. York, Robert J. Levenson, the Estate of Richard Aiello and certain of their affiliates or related entities (collectively, the “Stockholders Agreement Parties”) held more than 50% of the voting power for the election of the Company’s directors. Accordingly, we relied upon the “controlled company” exception with respect to certain NYSE corporate governance requirements. Pursuant to this

exception, we were exempt from the rules that would have otherwise required that our Board of Directors co nsist of a majority of independent directors and that our compensation committee and nominating and corporate governance committee be composed entirely of independent directors.

Following the initial closing of a registered secondary offering on September 21, 2015, the Stockholders Agreement Parties no longer hold more than 50% of the voting power for the election of directors and, as a result, we are no longer a “controlled company” as defined in the NYSE Listed Company Manual. By December 20, 2015, both our nominating and corporate governance committee and compensation committee must consist of a majority of independent directors, and by September 21, 2016, both committees must consist solely of independent directors and our Board of Directors must consist of a majority of independent directors. During these phase-in periods, our stockholders will not have the same protections afforded to stockholders of companies that have committees of their boards of directors that consist solely of independent directors and boards of directors that consist of a majority of independent directors. Further, if, within the phase-in periods, we are not able to recruit additional directors that would qualify as independent, or we are not able to otherwise comply with the NYSE listing requirements, we may be subject to enforcement actions by the NYSE.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Recent Sales of Unregistered Securities

None.

Share Repurchase Program

During the period covered by this Quarterly Report on Form 10-Q, we did not have a share repurchase program in place, and no shares of our common stock were repurchased.

Item 5. Other Information.

Certain provisions of our Amended and Restated Certificate of Incorporation (the “Charter”) became effective as of September 21, 2015, the date that the Stockholders Agreement Parties ceased to collectively beneficially own (directly or indirectly) more than 50% of the outstanding shares of our common stock (the “Trigger Date”), replacing certain provisions that only applied prior to the Trigger Date. Effective November 3, 2015, our Board of Directors amended and restated the Company’s existing bylaws (as so amended and restated, the “Amended and Restated Bylaws”) in order to, among other things, conform Section 3.14 of the bylaws to the related Charter provision applicable after the Trigger Date. Section 3.14 of the Amended and Restated Bylaws provides that no director may be removed from office by the stockholders except for cause with the affirmative vote of the holders of not less than sixty-six and two-thirds percent (66 ⅔%) of the total voting power of all outstanding securities of the Company then entitled to vote generally in the election of directors, voting together as a single class. The threshold for removal of a director by the stockholders was previously a majority of the total voting power of all outstanding securities of the Company then entitled to vote generally in the election of directors, voting together as a single class.

The foregoing description of the Amended and Restated Bylaws is qualified in its entirety by reference to the full text of the Amended and Restated Bylaws, a copy of which is attached to this Quarterly Report on Form 10-Q as Exhibit 3.2 and incorporated herein by reference.

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.		Description

2.1		Merger Agreement, by and among Paycom Software, Inc., Paycom Payroll Holdings, LLC, Paycom Payroll, LLC and Paycom Merger Sub, LLC, dated December 30, 2013 (incorporated by reference to Exhibit 2.4 to the Company’s Registration Statement on Form S-1 dated March 10, 2014, filed with the SEC on March 10, 2014).

2.2		Contribution Agreement, by and between WCAS Capital Partners, IV, L.P. and Paycom Software, Inc., dated December 30, 2013 (incorporated by reference to Exhibit 2.5 to the Company’s Registration Statement on Form S-1 dated March 10, 2014, filed with the SEC on March 10, 2014).

Exhibit No.		Description

2.3		Contribution Agreement, by and among Welsh, Carson, Anderson & Stowe X, L.P., WCAS Management Corporation and Paycom Software, Inc., dated December 30, 2013 (incorporated by reference to Exhibit 2.6 to the Company’s Registration Statement on Form S-1 dated March 10, 2014, filed with the SEC on March 10, 2014).

2.4		Contribution Agreement, by and among Paycom Software, Inc. and each of the signatories thereto, dated December 30, 2013 (incorporated by reference to Exhibit 2.7 to the Company’s Registration Statement on Form S-1 dated March 10, 2014, filed with the SEC on March 10, 2014).

3.1		Amended and Restated Certificate of Incorporation of Paycom Software, Inc. (incorporated by reference to Exhibit 3.1 to the Company’s Amendment No. 1 to the Registration Statement on Form S-1/A dated March 31, 2014, filed with the SEC on March 31, 2014).

3.2*		Amended and Restated Bylaws of Paycom Software, Inc.

4.1		Form of Common Stock Certificate (incorporated by reference to Exhibit 4.1 to the Company’s Amendment No. 1 to the Registration Statement on Form S-1/A dated March 31, 2014, filed with the SEC on March 31, 2014).

4.2		Amended and Restated Stockholders’ Agreement (incorporated by reference to Exhibit 4.2 to the Company’s Registration Statement on Form S-1 dated March 10, 2014, filed with the SEC on March 10, 2014).

4.3		Registration Rights Agreement (incorporated by reference to Exhibit 4.3 to the Company’s Registration Statement on Form S-1 dated March 10, 2014, filed with the SEC on March 10, 2014).

4.4		Joinder to Amended and Restated Stockholders Agreement, by and among Paycom Software, Inc. and each of the signatories thereto, dated as of March 6, 2015 (incorporated by reference to Exhibit 4.4 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015, filed with the SEC on May 13, 2015).

4.5		Joinder to Amended and Restated Stockholders Agreement, by and among Paycom Software, Inc. and each of the signatories thereto, dated as of March 6, 2015 (incorporated by reference to Exhibit 4.5 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015, filed with the SEC on May 13, 2015).

4.6		Joinder to Registration Rights Agreement, by and among Paycom Software, Inc. and each of the signatories thereto, dated as of March 6, 2015 (incorporated by reference to Exhibit 4.6 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015, filed with the SEC on May 13, 2015).

4.7		Amendment No. 1 to Registration Rights Agreement, by and among Paycom Software, Inc. and each of the signatories thereto, dated as of May 13, 2015 (incorporated by reference to Exhibit 4.7 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2015, filed with the SEC on August 7, 2015).

4.8*		Joinder to Amended and Restated Stockholders Agreement, by and between Paycom Software, Inc. and The Mackesy Family Foundation, dated as of May 27, 2015.

4.9*		Joinder to Registration Rights Agreement, by and between Paycom Software, Inc. and The Mackesy Family Foundation, dated as of May 27, 2015.

4.10*		Joinder to Amended and Restated Stockholders Agreement, by and between Paycom Software, Inc. and Anthony & Christie de Nicola Foundation, dated as of August 13, 2015.

4.11*		Joinder to Registration Rights Agreement, by and between Paycom Software, Inc. and Anthony & Christie de Nicola Foundation, dated as of August 13, 2015.

4.12*		Amendment No. 2 to Registration Rights Agreement, by and among Paycom Software, Inc. and each of the signatories thereto, dated as of September 15, 2015.

4.13*		Joinder to Amended and Restated Stockholders Agreement, by and between Paycom Software, Inc. and The Swani Family Foundation, dated as of October 13, 2015.

4.14*		Joinder to Registration Rights Agreement, by and between Paycom Software, Inc. and The Swani Family Foundation, dated as of October 13, 2015.

4.15*		Joinder to Amended and Restated Stockholders Agreement, by and between Paycom Software, Inc. and Paul & Anne-Marie Queally Family Foundation, dated as of October 13, 2015.

4.16*		Joinder to Registration Rights Agreement, by and between Paycom Software, Inc. and Paul & Anne-Marie Queally Family Foundation, dated as of October 13, 2015.

Exhibit No.		Description

10.1		Form of CEO Market-Based Vesting Restricted Stock Award Agreement under the Paycom Software, Inc. 2014 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated July 8, 2015, filed with the SEC on July 10, 2015).

10.2		Form of Market-Based Vesting Restricted Stock Award Agreement under the Paycom Software, Inc. 2014 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K dated July 8, 2015, filed with the SEC on July 10, 2015).

10.3		Form of Time and Market-Based Vesting Restricted Stock Award Agreement under the Paycom Software, Inc. 2014 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K dated July 8, 2015, filed with the SEC on July 10, 2015).

10.4		Form of Time Delayed and Market-Based Vesting Restricted Stock Award Agreement under the Paycom Software, Inc. 2014 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K dated July 8, 2015, filed with the SEC on July 10, 2015).

10.5		Form of Time-Based Vesting Restricted Stock Award Agreement under the Paycom Software, Inc. 2014 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K dated July 8, 2015, filed with the SEC on July 10, 2015).

31.1*		Certification of the Chief Executive Officer of the Company, pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.

31.2*		Certification of the Chief Financial Officer of the Company, pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.

32.1**		Certification of the Chief Executive Officer and Chief Financial Officer of the Company, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS*		XBRL Instance Document.

101.SCH*		XBRL Taxonomy Extension Schema Document.

101.CAL*		XBRL Taxonomy Calculation Linkbase Document.

101.DEF*		XBRL Taxonomy Definition Linkbase Document.

101.LAB*		XBRL Taxonomy Label Linkbase Document.

101.PRE*		XBRL Taxonomy Presentation Linkbase Document.

*	Filed herewith.

The certifications attached as Exhibit 32.1 are not deemed “filed” with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of Paycom Software, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, 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.

SIGNAT URES

Pursuant to the requirements of the Securities Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	PAYCOM SOFTWARE, INC.

Date: November 6, 2015	By:	/s/ Chad Richison
		Chad Richison
		Chief Executive Officer and Director
		(Principal Executive Officer)

Date: November 6, 2015	By:	/s/ Craig E. Boelte
		Craig E. Boelte
		Chief Financial Officer (Principal Financial Officer)

Exhibit 3.2

[AMENDED AND RESTATED]

BYLAWS

PAYCOM SOFTWARE, INC.

*****

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 1675 South State Street, Suite B, 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, 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).

Section 2.02 . Annual Meetings . An annual meeting of stockholders, commencing with the year 2014, shall be held for the election of directors and to transact such other business as may properly be brought before the meeting.

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 at any meeting of stockholders.

Section 2.05. Notice of Meetings and Adjourned Meetings; Waivers of Notice .

(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 communications, if any, by which stockholders and proxy holders may be deemed to be present in person and vote

Exhibit 3.2

at such 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. The Board of Directors or the chairman of the meeting may adjourn the meeting to another time or place (whether or not a quorum is present), and notice need not be given of the adjourned meeting if the time, place, if any, and the means of remote communications, if any, by which stockholders and proxy holders may be deemed to be present in person and voting at such meeting, are announced at the meeting at which such adjournment is made. 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 meeting.

(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. Business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice.

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. If, however, such 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, without notice other than announcement at the meeting, 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 or to express consent or dissent to a corporate action in writing without a meeting 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, or by proxy sent by cable, telegram or by any means of electronic communication permitted by law, which results in a writing from such stockholder or by his attorney, and delivered to the secretary of the meeting. Except as otherwise provided in the Stockholders Agreement of the Corporation, by and among the Corporation, Welsh, Carson, Anderson & Stowe X, L.P., a Delaware limited partnership (“ WCAS ”), WCAS Capital Partners, IV, L.P., a Delaware limited partnership (“ CP IV ”), Chad Richison, Shannon Rowe, William Kerber, Jeff York, Robert Levenson, Richard Aiello and each other signatory thereto (as the same may be amended, restated, supplemented or modified, the “Stockholders Agreement ”), a copy of which is on file with the Corporation, pursuant to which such stockholders have entered into certain voting and other arrangements as set forth therein, 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.

Exhibit 3.2

Section 2.08 . Permitted Actions by Written Consent . Unless otherwise provided in the Stockholders Agreement or the Certificate of Incorporation, a n 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 . Organization . At each meeting of stockholders, the Chairman of the Board of Directors, if one shall have been elected, or in the Chairman’s absence or if one shall not have been elected, the director designated by the vote of the majority of the directors present at such meeting, shall act as chairman of the meeting. The Secretary (or in the Secretary’s absence or inability to act, the person whom the chairman of the meeting shall appoint secretary of the meeting) shall act as secretary of the meeting and keep the minutes thereof.

Section 2.10 . Order of Business . The order of business at all meetings of stockholders shall be as determined by the chairman of the meeting.

Section 2.11. Voting Lists . The officer or agent having charge of the transfer book for stock of the Corporation shall make, at least ten (10) days before such meeting, 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, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at the Corporation’s principal executive offices or at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the entire meeting, and may be inspected by any stockholder who is present at 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 2.12. 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 (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 notice procedures set forth in this Section 2.12 . 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, the stockholder or stockholders of record intending to propose the business (the “ Proposing Stockholder” ) must have given timely notice thereof pursuant to this Section 2.12(a) or Section 2.12(c) below, as applicable, in writing to the Secretary of the Corporation. To be timely, a Proposing Stockholder’s notice must be delivered to or mailed and received at the principal executive offices of the Corporation: (x) not later than the close of business on the ninetieth (90 ^th ) day, nor earlier than the close of business on the one hundred and twentieth (120 ^th ) 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 (90 ^th ) day prior to such annual meeting or the close of business on the tenth (10 ^th ) day following the date of Public Disclosure of the date of such meeting. In no event shall an adjournment, deferral or postponement of an annual meeting or Public Disclosure thereof commence a new notice time period (or extend any notice time period) for the giving of a stockholder’s notice as described above. For purposes of this Section 2.12(a) , “ 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 Securities Exchange Act of 1934, as amended (the “ Exchange Act ”), and the rules and regulations promulgated thereunder.

Exhibit 3.2

(b) Stockholder Nominations . For the nomination of any person or persons for election to the B oard o f D ir ectors, a Proposing Stockholder’ s notice to the S ecretary of the Corporation shall set forth (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, (iii) the number of shares of capital stock of the Corporation which are owned of record and 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 that is otherwise required to be disclosed, under Section 14(a) of the Exchange Act , (v) a description of all direct and indirect compensation and other material agreements, arrangements and understandings during the past three (3) years, and any other material relationships, between or among the Proposing Stockholder or beneficial owner or any of their affiliates or associat es , 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 Item 404 promulgated under Regulation S-K if the stockholder making the nomination and any beneficial owner on whose behalf the nomination is made, or any affiliate or associate thereof or person acting in concert therewith, were the “registrant” for purposes of such rule and the nominee were a director or executive officer of such registrant, (vi) a completed and signed questionnaire regarding the background and qualification of such person to serve as a director, a copy of which may be obtained upon request to the Secretary, (vii) the consent of the nominee to being named in the proxy statement as a nominee and to serving as a director if elected, and (vi ii ) as to the Proposing Stockholder: (A) the name and address of the Proposing Stockholder as they appear on the Corporation’ s books and of the beneficial owner, if any, on whose behalf the nomination is being made, (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 the beneficial owner, if any, on whose behalf the nomination is being made, as of the date of the P roposing 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 date notice of the record da te is first publicly disclosed, (C) a description of any agreement, arrangement or understanding with respect to such nomination between or among the Proposing Stockholder and any of its affiliates or associates, and any others (including their names) acting in concert with any of the foregoing, and a representation that the Proposing Stockholder will notify the Corporation in writing of any such agreement, arrangement or understanding in effect as of the record date for the meeting promptly following the later of the record date or the date notice of the record da te is first publicly disclosed, (D) 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 ind irectly, beneficially owned by t he Proposing Stockholder or beneficial owner or any of their affiliates or associates, (E) any agreement, arrangement, understanding, or relationship, including any repurchase or similar so-called “stock borrowing” agreement or arrangement, engaged in, directly or indirectly, by t he 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 stockholder or beneficial owner or any affiliate or associate of the Proposing Stockholder or beneficial owner 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 from any decrease in the price or value of any class or series or capital stock or other securities of the Corporation, (F) a description of any other direct or indirect opportunity 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, (G) any proxy, contract, arrangement, understanding or relationship pursuant to which t he Proposing Stockholder or beneficial owner or any of their affiliates or associates has a right to vote any shares or other securities of the Corporation, (H) any rights to dividends on the shares of the Cor poration owned beneficially by t he Proposing Stockholder or such beneficial owner or any of their affiliates or associates that are separated or separable from the underlying shares of the Corporation , (I) any proportionate interest in shares of the Corporation or Derivative Securities held directly or indirectly, by a general o r limited partnership in which t he Proposing Stockholder or beneficial owner or any of their affiliates or associates is a general partner or, directly or indirectly, beneficially owns an interest in a general partner, if any, (J) a description of all agreements, arrangemen ts, and understandings between t he Proposing Stockholder or beneficial owner or any of their 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, (K ) 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, and (L ) a representation as to whether the Proposing Stockholder intends to deliver a proxy statement and/or form of proxy to holders of at least th e percentage of the Corporation’ s outstanding capital stock required to approve the nomination and/or otherwise to solicit proxies from stockholders in support of the nomination. 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 t o 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) any other information relating to such stockholder and beneficial owner, if any, on whose behalf the proposal is being made, 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 the rules and regulations promulgated thereunder and (iii) the information required by Section 2.12(b) above.

(d) Proxy Rules . Notwithstanding the foregoing provisions of this Section 2.12 , 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 2.12 . Nothing in this section 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), (ii) confer upon any stockholder a right to have a nominee or any proposed business included in the Corporation’s proxy statement, or (iii) 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.

(e) 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 (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 2.12 is delivered to the Secretary of the Corporation and upon the record date for the determination of stockholders entitled 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 2.12 . 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 2.12 shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the ninetieth (90 ^th ) day prior to such special meeting and not earlier than the close of business on the later of the one hundred and twentieth (120 ^th ) 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.

(f) Effect of Noncompliance . Notwithstanding anything in these Bylaws to the contrary: (i) 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 2.12 , and (ii) 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 2.12 does not provide the information required under this Section 2.12 to the Corporation promptly following the later of the record date or the date notice of the record date is first publicly disclosed, or the Proposing Stockholder (or a

Exhibit 3.2

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. Th e requirements of this Section 2.1 2 shall apply to any business or nominations to be brought before an annual or special meeting by a stockholder whether such business or nominations are to be included in the Corporation’ s proxy statement pursuant to Rule 14a-8 of the Exchange Act or presented to stockholders by means of an independently financed proxy solicitation. The requirements of the Section 2.1 2 are included to provide the Corp oration notice of a stockholder’ s intention to bring business or nominations before an annual or special meeting and shall in no event be construed as imposing upon any stockholder the requirement to seek approval from the Corporation as a condition precedent to bringing any such business or make such nominations before an annual meeting.

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 determined as set forth in the Stockholders Agreement provided that following such time that the Stockholders Agreement is terminated in accordance with its terms, then 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 Stockholders Agreement or 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 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, 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.

Exhibit 3.2

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 resolution of 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 in such manner as is determined by the Board of Directors.

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 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, 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 the writing or writings or electronic transmission or transmissions, are filed with the minutes of proceedings of the Board of Directors or committee. Such filing shall be in paper form if the minutes are maintained in paper form and shall be in electronic form if the minutes are maintained in electronic form.

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 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.

Section 3.13 . Vacancies . Subject to the terms of the Stockholders Agreement or 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

Exhibit 3.2

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. Subject to the terms of the Stockholders Agreement , if there are no directors in office, then an election of directors may be held in accordance with Delaware Law. Un less otherwise provided in the Stockholders Agreement or the Certificate of I ncorporation, when one or more directors shall resign from the Board 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 . Subject to the terms of the Stockholders Agreement, no director may be removed from office by the stockholders except for cause with the affirmative vote of the holders of not less than sixty-six and two-thirds percent (66 ⅔%) 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.

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 who shall have the duty, among other things, to record the proceedings of the meetings of stockholders and directors in a book kept for that purpose. 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 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

Exhibit 3.2

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 and Treasurer . The Chief Financial Officer and Treasurer (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, the President or any Vice 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.

(e) 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 President or by any Vice 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.

Section 4.02 . Appointment and Term of Office . The principal officers of the Corporation shall be appointed annually by the Board of Directors at the annual meeting thereof. Each such officer 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.

Exhibit 3.2

Section 4.04 . Removal . A ny 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 .

Section 4.05 . Resignations . Any officer may resign at any time by giving written notice 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.

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, or in the name of the Corporation by the Chairman or Vice Chairman of the Board of Directors, or the Chief Executive Officer, President or Vice President, and by the Chief Financial Officer, Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary of such 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.

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,

Exhibit 3.2

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 i ssuance 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, 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, 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 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.

Exhibit 3.2

Section 6.0 3. 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 6.0 1 and 6.0 2 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, officer, employee or agent 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; 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.

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”

Exhibit 3.2

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. Change in Governing Law . In the event of any amendment or addition to Section 145 of Delaware Law or the addition of any other section to such law which shall limit indemnification rights thereunder, the Corporation shall, to the fullest extent permitted by Delaware Law, indemnify and hold harmless to the fullest extent authorized or permitted hereunder, 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 (including an action by or in the right of the Corporation), by reason of the fact that he or she is or was a director, officer, employee, fiduciary or agent of the Corporation, or 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, 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 him in connection with such action, suit or proceeding.

Section 6.11. 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

Exhibit 3.2

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 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 t o be taken is delivered to the C orporation by delivery to its registered office in the State of Delaware, its principal place of business, or any officer or agent of the C orporation 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 . Subject to the terms of the Stockholders Agreement, 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 Stockholders Agreement or 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.

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Exhibit 4.8

JOINDER TO
AMENDED AND RESTATED STOCKHOLDERS AGREEMENT

This Joinder (the “ Joinder ”), to the Amended and Restated Stockholders Agreement, dated as of March 10, 2014, by and among Paycom Software, Inc., a Delaware corporation (the “ Company ”), and certain stockholders of the Company (the “ Agreement ”), is made and entered into by the Company and the undersigned (the “ Holder ”). Capitalized terms used but not otherwise defined herein shall have the meanings set forth in the Agreement.

WHEREAS, the Holder has acquired certain shares of capital stock of the Company (“ Holder Stock ”), and the Agreement requires the Holder, in such Person’s capacity as a holder of such capital stock, to become a party to the Agreement, and the Holder agrees to do so in accordance with the terms hereof.

NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties to this Joinder, each intending to be legally bound, hereby agree as follows:

1. Agreement to be Bound . The Holder hereby agrees, solely with respect to itself, that upon execution of this Joinder, it shall become a party to the Agreement and shall be fully bound by, and subject to, all of the covenants, terms and conditions of the Agreement as though an original party thereto and shall be deemed an Additional Stockholder for all purposes thereof. In addition, the Holder hereby agrees that all Holder Stock acquired by such Holder shall be deemed Stockholder Shares for all purposes of the Agreement and such Holder will be deemed to be a WCAS Holder.

2. Successors and Assigns . Except as otherwise provided herein, this Joinder shall bind and inure to the benefit of and be enforceable by the Company and its successors and assigns and the Holder and any subsequent holders of Holder Stock and the respective successors and assigns of each of them, so long as they hold any shares of Holder Stock.

3. Counterparts . This Joinder may be executed in separate counterparts each of which shall be an original and all of which taken together shall constitute one and the same agreement.

4. Notices . For purposes of Section 14 of the Agreement, all notices, demands or other communications to any Holder shall be directed to such Holder:

c/o Welsh, Carson, Anderson & Stowe
320 Park Avenue, Suite 2500
New York, NY 10022
Facsimile No.: (212) 735-0809
Attn:	Jonathan Rather
	David Mintz

Exhibit 4.8

5. Governing Law . This Joinder shall be governed by, and construed in accordance with, the laws of the State of Delaware, without giving effect to any choice of law or conflict of law rules or provisions (whether of the State of Delaware or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Delaware. Any dispute relating hereto shall be heard in the state or federal courts of Delaware, and the parties agree to jurisdiction and venue therein.

6. Descriptive Headings . The descriptive headings of this Joinder are inserted for convenience only and do not constitute a part of this Joinder.

7. Waiver of Jury Trial . Each of the parties hereto waives any right it may have to trial by jury in respect of any litigation based on, arising out of, under or in connection with the Agreement or any course of conduct, course of dealing, verbal or written statement or action of any party hereto.

8. Jurisdiction . Each of the parties hereto submits to the jurisdiction of any state or federal court sitting in Wilmington, Delaware, in any action or proceeding arising out of or relating to this Joinder and agrees that all claims in respect of the action or proceedings may be heard and determined in any such court and hereby expressly submits to the personal jurisdiction and venue of such court for the purposes hereof and expressly waives any claim of improper venue and any claim that such courts are an inconvenient forum. Each of the parties hereby irrevocably consent to the service of process of any of the aforementioned courts in any such suit, action or proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, to its address set forth in Section 4 such service to become effective 10 days after such mailing.

* * * * *

IN WITNESS WHEREOF, the parties hereto have executed this Joinder as of May 27 , 2015.


Entity		Natural Person
The Mackesy Family Foundation
Name of Entity		Signature
/s/ D. Scott Mackesy
Name: D. Scott Mackesy Title: Trustee		Print Name

Signature Page to Joinder to Stockholders Agreement

PAYCOM SOFTWARE, INC.
By:	/s/ Craig E. Boelte
Name:	Craig E. Boelte
Title:	CFO

Signature Page to Joinder to Stockholders Agreement

Exhibit 4.9

JOINDER TO
REGISTRATION RIGHTS AGREEMENT

This Joinder (the “ Joinder ”), to the Registration Rights Agreement, dated as of December 30, 2013, by and among Paycom Software, Inc., a Delaware corporation (the “ Company ”), and certain stockholders of the Company (the “ Agreement ”), is made and entered into by the Company and the undersigned. Capitalized terms used but not otherwise defined herein shall have the meanings set forth in the Agreement.

WHEREAS, the undersigned (the “ Holder ”) has acquired certain shares of capital stock of the Company (“ Holder Stock ”) as of the date hereof; and

WHEREAS, that certain Amended and Restated Stockholders Agreement, dated as of March 10, 2014 (the “ Stockholders Agreement” ), by and among the Company and certain Stockholders of the Company party thereto, provides that the Holder, in such Person’s capacity as an Affiliate (as defined in the Stockholders Agreement) of an existing Stockholder (as defined in the Stockholders Agreement) and a holder of such capital stock, may become a party to the Agreement, and the Holder desires to do so in accordance with the terms hereof.

1. Agreement to be Bound . The Holder hereby agrees, solely with respect to itself, that upon execution of this Joinder, it shall become a party to the Agreement and shall be fully bound by, and subject to, all of the covenants, terms and conditions of the Agreement as though an original party thereto and shall be deemed a Holder for all purposes thereof. In addition, the Holder hereby agrees that all Holder Stock acquired by such Holder shall be deemed to be WCAS Registrable Securities owned by such Holder for all purposes of the Agreement as a result of such Holder’s affiliation with Welsh, Carson, Anderson & Stowe X, L.P. or WCAS Capital Partners IV, L.P., as applicable.

3. Counterparts . This Joinder may be executed simultaneously in two or more counterparts, any one of which need not contain the signatures of more than one party, but all such counterparts taken together will constitute one and the same Joinder.

Exhibit 4.9

4. Governing Law . ALL QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY AND INTERPRETATION OF THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE DOMESTIC LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW OR CONFLICT OF LAW PROVISION OR RULE (WHETHER OF THE STATE OF NEW YORK OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF NEW YORK.

5. Descriptive Headings . The descriptive headings of this Joinder are inserted for convenience only and do not constitute a part of this Joinder.

* * * * *

IN WITNESS WHEREOF, the parties hereto have executed this Joinder as of May 27, 2015 .

HOLDER

Entity		Natural Person
The Mackesy Family Foundation
Name of Entity		Signature
/s/ D. Scott Mackesy
Name: D. Scott Mackesy Title: Trustee		Print Name

Signature Page to Joinder to Registration Rights Agreement

PAYCOM SOFTWARE, INC.
By:	/s/ Craig E. Boelte
Name:	Craig E. Boelte
Title:	CFO

Signature Page to Joinder to Registration Rights Agreement

Exhibit 4.10

JOINDER TO
AMENDED AND RESTATED STOCKHOLDERS AGREEMENT

3. Counterparts . This Joinder may be executed in separate counterparts each of which shall be an original and all of which taken together shall constitute one and the same agreement.

4. Notices . For purposes of Section 14 of the Agreement, all notices, demands or other communications to any Holder shall be directed to such Holder:

c/o Welsh, Carson, Anderson & Stowe
320 Park Avenue, Suite 2500
New York, NY 10022
Facsimile No.: (212) 735-0809
Attn:	Jonathan Rather
	David Mintz

Exhibit 4.10

6. Descriptive Headings . The descriptive headings of this Joinder are inserted for convenience only and do not constitute a part of this Joinder.

* * * * *

IN WITNESS WHEREOF, the parties hereto have executed this Joinder as of August 13 , 2015.

Entity		Natural Person
Anthony & Christie de Nicola Foundation
Name of Entity		Signature
/s/ Anthony de Nicola
Name: Anthony de Nicola Title: Authorized Signatory		Print Name

Signature Page to Joinder to Stockholders Agreement

PAYCOM SOFTWARE, INC.
By:	/s/ Craig E. Boelte
Name:	Craig E. Boelte
Title:	CFO

Signature Page to Joinder to Stockholders Agreement

Exhibit 4.11

JOINDER TO
REGISTRATION RIGHTS AGREEMENT

WHEREAS, the undersigned (the “ Holder ”) has acquired certain shares of capital stock of the Company (“ Holder Stock ”) as of the date hereof; and

1. Agreement to be Bound . The Holder hereby agrees, solely with respect to itself, that upon execution of this Joinder, it shall become a party to the Agreement and shall be fully bound by, and subject to, all of the covenants, terms and conditions of the Agreement as though an original party thereto and shall be deemed a Holder for all purposes thereof. In addition, the Holder hereby agrees that all Holder Stock acquired by such Holder shall be deemed to be WCAS Registrable Securities owned by such Holder for all purposes of the Agreement as a result of such Holder’s affiliation with Welsh, Carson, Anderson & Stowe X, L.P. or WCAS Capital Partners IV, L.P., as applicable.

Exhibit 4.11

5. Descriptive Headings . The descriptive headings of this Joinder are inserted for convenience only and do not constitute a part of this Joinder.

* * * * *

IN WITNESS WHEREOF, the parties hereto have executed this Joinder as of August 13 , 2015 .

HOLDER


Entity		Natural Person
Anthony & Christie de Nicola Foundation
Name of Entity		Signature
/s/ Anthony de Nicola
Name: Anthony de Nicola Title: Authorized Signatory		Print Name

Signature Page to Joinder to Registration Rights Agreement


PAYCOM SOFTWARE, INC.

By:	/s/ Craig E. Boelte
Name:		Craig E. Boelte
Title:		CFO

Signature Page to Joinder to Registration Rights Agreement

Exhibit 4.12

AMENDMENT NO. 2 TO THE
REGISTRATION RIGHTS AGREEMENT

This Amendment No. 2 (this “ Amendment ”) to the Registration Rights Agreement, dated as of December 30, 2013 (as amended from time to time, the “ Registration Rights Agreement ”), by and among Paycom Software, Inc., Paycom Payroll, LLC, Welsh, Carson, Anderson & Stowe X, L.P., WCAS Management Corporation, WCAS Capital Partners IV, L.P., WCAS Paycom Holdings, Inc., each of the Persons listed on the signature pages attached to the Registration Rights Agreement and each other Person who executed a joinder thereto, is entered into as of September 15, 2015. Capitalized terms used in this Amendment but not otherwise defined herein shall have the respective meanings assigned to them in the Registration Rights Agreement.

WHEREAS , pursuant to Section 11(c) of the Registration Rights Agreement, the provisions of the Registration Rights Agreement may be amended upon the prior written consent of the Company and the Holders of not less than a majority of the Registrable Securities.

NOW, THEREFORE , in consideration of the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the undersigned, being the Holders of not less than a majority of the Registrable Securities, give their written consent to amend the Registration Rights Agreement as follows:

1. Deletion of Section 3(e) . Section 3(e) of the Registration Rights Agreement is hereby deleted in its entirety and replaced with the following:

“(e) [Intentionally Omitted.]”

2. New Section 11(j) . Section 11 of the Registration Rights Agreement is hereby amended by adding the following provision as Section 11(j):

“(j) Confidentiality . After a Holder has been notified of an opportunity to include Registrable Securities in a Piggyback Registration pursuant to Section 3(a), such Holder, other than in the capacity as an officer, director or employee of the Company, (i) shall treat the Offering Confidential Information with respect to such Piggyback Registration as confidential information, (ii) shall not use any such Offering Confidential Information for any purpose other than to evaluate whether to include its Registrable Securities (or other shares of Common Stock) in such Piggyback Registration, (iii) shall not disclose any such Offering Confidential Information to any Person other than its agents, employees, advisors and counsel who have a need to know such Offering Confidential Information, and (iv) shall cause such agents, employees, advisors and counsel to whom Offering Confidential Information is disclosed pursuant to clause (iii) to comply with the requirements of this Section 11(j); provided, that any such Holder may disclose Offering Confidential Information if such disclosure is required by applicable law, but such Holder shall cooperate with the Company to limit the extent of such disclosure through protective order or otherwise, and to seek confidential treatment of the Offering Confidential

Information. The obligations in this Section 11(j) shall survive the expiration or termination of this Agreement.

For purposes of this Section 11(j), “ Offering Confidential Information ” means, with respect to a Piggyback Registration, (i) the Company’s plan to file the relevant registration statement or prospectus and engage in the offering so registered, (ii) any information regarding the offering being registered (including the potential timing, price, number of shares, underwriters or other counterparties, selling stockholders or plan of distribution) and (iii) any other information (including information contained in draft supplements or amendments to offering materials) provided to any Holders by the Company in connection with such Piggyback Registration; provided, that Offering Confidential Information shall not include information that (x) was or becomes generally available to the public (including as a result of the filing of the relevant Registration Statement) other than as a result of a disclosure by any Holder, (y) was or becomes available to any Holder from a source that was not bound by a legal, fiduciary or contractual obligation to the Company or (z) was otherwise in such Holder’s possession prior to it being furnished to such Holder by the Company or on the Company’s behalf.”

3. Miscellaneous .

(a) Effect of Amendment . In the event of any inconsistency or conflict between the Registration Rights Agreement and this Amendment, the terms, conditions and provisions of this Amendment shall govern and control. Except as modified by this Amendment, the Registration Rights Agreement shall continue in full force and effect. Nothing in this Amendment shall be construed to modify any provision of the Registration Rights Agreement or in any other document or instrument delivered in connection therewith, other than those provisions of the Registration Rights Agreement specifically amended as set forth in this Amendment.

(b) Entire Agreement . This Amendment and the Registration Rights Agreement contain the entire understanding of the parties hereto with respect to the subject matter contained herein and therein. Any reference to the Registration Rights Agreement after this Amendment is first effective shall be deemed to be a reference to the Registration Rights Agreement as amended hereby.

(c) Successors and Assigns . All covenants and agreements in this Amendment by or on behalf of any of the parties hereto will bind and inure to the benefit of the respective successors and assigns of the parties hereto whether so expressed or not. In addition, whether or not any express assignment has been made, the provisions of this Amendment which are for the benefit of purchasers or Holders are also for the benefit of, and enforceable by, any subsequent Holder.

(d) Severability . Whenever possible, each provision of this Amendment will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Amendment is held to be prohibited by or invalid under applicable law, such

provision will be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of this Amendment.

(e) Counterparts . This Amendment may be executed simultaneously in two or more counterparts, any one of which need not contain the signatures of more than one party, but all such counterparts taken together will constitute one and the same Amendment.

(f) GOVERNING LAW . ALL QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY AND INTERPRETATION OF THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE DOMESTIC LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO ANY CHOICE OF LAWS OR CONFLICT OF LAWS PROVISION OR RULE (WHETHER OF THE STATE OF NEW YORK OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF NEW YORK.

(g) Descriptive Headings . The descriptive headings of this Amendment are inserted for convenience only and do not constitute a part of this Amendment.

* * * * *

IN WITNESS WHEREOF , the parties hereto have executed and consented to this Amendment No. 2 to the Registration Rights Agreement as of the date first above written.

Paycom Software, Inc.

By:	/s/ Chad Richison
	Name:	Chad Richison
	Title:	CEO

Paycom Payroll, LLC

By:	/s/ Chad Richison
	Name:	Chad Richison
	Title:	CEO

[ Signature Page to Amendment No. 2 to the Registration Rights Agreement ]

Welsh, Carson, Anderson & Stowe X, L.P.

By:	WCAS X Associates LLC
Its:	General Partner

By:	/s/ Jonathan Rather
	Name:	Jonathan Rather
	Title:	Managing Member

WCAS Capital Partners IV, L.P.

By:	WCAS CP IV Associates LLC
Its:	General Partner

By:	/s/ Jonathan Rather
	Name:	Jonathan Rather
	Title:	Managing Member

WCAS Management Corporation

By:	/s/ Jonathan Rather
	Name:	Jonathan Rather
	Title:	Treasurer and Assistant Secretary

WCAS Paycom Holdings, Inc.

By:	/s/ Jonathan Rather
	Name:	Jonathan Rather
	Title:	Authorized Signatory

[ Signature Page to Amendment No. 2 to the Registration Rights Agreement ]

Ernest Group, Inc.

By:	/s/ Chad Richison
	Name:	Chad Richison
	Title:	President

The Ruby Group, Inc.

By:	/s/ Chad Richison
	Name:	Chad Richison
	Title:	President

[ Signature Page to Amendment No. 2 to the Registration Rights Agreement ]

Exhibit 4.13

JOINDER TO
AMENDED AND RESTATED STOCKHOLDERS AGREEMENT

3. Counterparts . This Joinder may be executed in separate counterparts each of which shall be an original and all of which taken together shall constitute one and the same agreement.

4. Notices . For purposes of Section 14 of the Agreement, all notices, demands or other communications to any Holder shall be directed to such Holder:

c/o Welsh, Carson, Anderson & Stowe
320 Park Avenue, Suite 2500
New York, NY 10022
Facsimile No.: (212) 735-0809
Attn:	Jonathan Rather
	David Mintz

Exhibit 4.13

6. Descriptive Headings . The descriptive headings of this Joinder are inserted for convenience only and do not constitute a part of this Joinder.

* * * * *

IN WITNESS WHEREOF, the parties hereto have executed this Joinder as of October 13 , 2015.

Entity		Natural Person
The Swani Family Foundation
Name of Entity		Signature
/s/ Sanjay Swani
Name: Sanjay Swani Title: Trustee		Print Name

Signature Page to Joinder to Stockholders Agreement

PAYCOM SOFTWARE, INC.
By:	/s/ Craig E. Boelte
Name:	Craig E. Boelte
Title:	CFO

Signature Page to Joinder to Stockholders Agreement

Exhibit 4.14

JOINDER TO

REGISTRATION RIGHTS AGREEMENT

WHEREAS, the undersigned (the “ Holder ”) has acquired certain shares of capital stock of the Company (“ Holder Stock ”) as of the date hereof; and

1. Agreement to be Bound . The Holder hereby agrees, solely with respect to itself, that upon execution of this Joinder, it shall become a party to the Agreement and shall be fully bound by, and subject to, all of the covenants, terms and conditions of the Agreement as though an original party thereto and shall be deemed a Holder for all purposes thereof. In addition, the Holder hereby agrees that all Holder Stock acquired by such Holder shall be deemed to be WCAS Registrable Securities owned by such Holder for all purposes of the Agreement as a result of such Holder’s affiliation with Welsh, Carson, Anderson & Stowe X, L.P. or WCAS Capital Partners IV, L.P., as applicable.

Exhibit 4.14

5. Descriptive Headings . The descriptive headings of this Joinder are inserted for convenience only and do not constitute a part of this Joinder.

* * * * *

IN WITNESS WHEREOF, the parties hereto have executed this Joinder as of October 13 , 2015.

HOLDER

Entity		Natural Person
The Swani Family Foundation
Name of Entity		Signature
/s/ Sanjay Swani
Name: Sanjay Swani Title: Trustee		Print Name

Signature Page to Joinder to Registration Rights Agreement

PAYCOM SOFTWARE, INC.
By:	/s/ Craig E. Boelte
Name:	Craig E. Boelte
Title:	CFO

Signature Page to Joinder to Registration Rights Agreement

Exhibit 4.15

JOINDER TO
AMENDED AND RESTATED STOCKHOLDERS AGREEMENT

3. Counterparts . This Joinder may be executed in separate counterparts each of which shall be an original and all of which taken together shall constitute one and the same agreement.

4. Notices . For purposes of Section 14 of the Agreement, all notices, demands or other communications to any Holder shall be directed to such Holder:

c/o Welsh, Carson, Anderson & Stowe
320 Park Avenue, Suite 2500
New York, NY 10022
Facsimile No.: (212) 735-0809
Attn:	Jonathan Rather
	David Mintz

Exhibit 4.15

6. Descriptive Headings . The descriptive headings of this Joinder are inserted for convenience only and do not constitute a part of this Joinder.

* * * * *

IN WITNESS WHEREOF, the parties hereto have executed this Joinder as of October 13 , 2015.


Entity		Natural Person
Paul & Anne-Marie Queally Foundation
Name of Entity		Signature
/s/ Paul Queally
Name: Paul Queally Title: President		Print Name

Signature Page to Joinder to Stockholders Agreement


PAYCOM SOFTWARE, INC.

By:	/s/ Craig E. Boelte
Name:		Craig E. Boelte
Title:		CFO

Signature Page to Joinder to Stockholders Agreement

Exhibit 4.16

JOINDER TO
REGISTRATION RIGHTS AGREEMENT

WHEREAS, the undersigned (the “ Holder ”) has acquired certain shares of capital stock of the Company (“ Holder Stock ”) as of the date hereof; and

1. Agreement to be Bound . The Holder hereby agrees, solely with respect to itself, that upon execution of this Joinder, it shall become a party to the Agreement and shall be fully bound by, and subject to, all of the covenants, terms and conditions of the Agreement as though an original party thereto and shall be deemed a Holder for all purposes thereof. In addition, the Holder hereby agrees that all Holder Stock acquired by such Holder shall be deemed to be WCAS Registrable Securities owned by such Holder for all purposes of the Agreement as a result of such Holder’s affiliation with Welsh, Carson, Anderson & Stowe X, L.P. or WCAS Capital Partners IV, L.P., as applicable.

Exhibit 4.16

5. Descriptive Headings . The descriptive headings of this Joinder are inserted for convenience only and do not constitute a part of this Joinder.

* * * * *

IN WITNESS WHEREOF, the parties hereto have executed this Joinder as of October 13 , 2015 .

HOLDER

Entity		Natural Person
Paul & Anne-Marie Queally Foundation
Name of Entity		Signature
/s/ Paul Queally
Name: Paul Queally Title: President		Print Name

Signature Page to Joinder to Registration Rights Agreement

PAYCOM SOFTWARE, INC.
By:	/s/ Craig E. Boelte
Name:	Craig E. Boelte
Title:	CFO

Signature Page to Joinder to Registration Rights Agreement

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Chad Richison, certify that:

1.	I have reviewed this Quarterly Report on Form 10-Q of Paycom Software, Inc.;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 6, 2015	By:	/s/ Chad Richison
		Chad Richison
		Chief Executive Officer
		(Principal Executive Officer)

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Craig E. Boelte, certify that:

1.	I have reviewed this Quarterly Report on Form 10-Q of Paycom Software, Inc.;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

(a)

(b)

(c)

(d)

5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 6, 2015	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

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code), each of the undersigned officers of Paycom Software, Inc. (the “Company”), does hereby certify, to such officer’s knowledge, that:

The Quarterly Report on Form 10-Q for the quarter ended September 30, 2015 (the “Form 10-Q”) of the Company fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934 and the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company as of, and for, the periods presented in the Form 10-Q.

Date: November 6, 2015	By:	/s/ Chad Richison
		Chad Richison
		Chief Executive Officer
		(Principal Executive Officer)

Date: November 6, 2015	By:	/s/ Craig E. Boelte
		Craig E. Boelte
		Chief Financial Officer
		(Principal Financial Officer)

The foregoing certification is being furnished as an exhibit to the Form 10-Q pursuant to Item 601(b)(32) of Regulation S-K and Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) and, accordingly, is not being filed as part of the Form 10-Q for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.