Paycom Software, Inc. 10-Q

Item 3. Quantitative and Qualitative Disclosures About Market Risk Interest Rate Sensitivity As of June 30, 2024, we had corporate cash and cash equivalents totaling $346.5 million and funds held for clients cash and cash equivalents totaling $2.3 billion. These amounts are invested primarily in demand deposit accounts and money market funds. We consider all highly liquid debt instruments with an original maturity of three months or less and SEC-registered money market mutual funds to be cash equivalents. Additionally, we had available-for-sale securities totaling $34.9 million included within funds held for clients on the consolidated balance sheets as of June 30, 2024. Our available-for-sale securities consisted of U.S. treasury securities with an original maturity greater than one year. The primary objectives of our investing activities are capital preservation, meeting our liquidity needs and, with respect to investing client funds, generating interest income while maintaining the safety of principal. We do not enter into investments for trading or speculative purposes. Our investments are subject to market risk due to changes in interest rates. The market value of fixed rate securities may be adversely affected due to a rise in interest rates, while floating rate securities may produce less income than expected if interest rates fall. Due in part to these factors, our future investment income may fall short of expectations due to changes in interest rates, or we may suffer losses in principal if we are forced to sell securities that decline in market value due to changes in interest rates. We classify all debt securities as available-for-sale and, as a result, no gains or losses are recognized due to changes in interest rates until such securities are sold or decreases in fair value are determined to be nonrecoverable. To date, we have not recorded any credit impairment losses on our portfolio. As of June 30, 2024, a hypothetical increase or decrease in interest rates of 100 basis points would result in an approximately $24.6 million increase or decrease, respectively, in interest earned on funds held for clients over the ensuing 12-month period. Interest earned on funds held for clients is included in recurring revenues in the consolidated statements of comprehensive income. There are no incremental costs of revenue associated with changes in interest earned on funds held for clients. An immediate increase in interest rates of 100 basis points would have resulted in a $0.1 million reduction in the aggregate market value of our fixed rate securities as of June 30, 2024. An immediate decrease in interest rates of 100 basis points would have resulted in a $0.1 million increase in the aggregate market value of our fixed rate securities as of June 30, 2024. These estimates are based on a sensitivity model that measures market value changes when changes in interest rates occur.