Item 1A. Risk Factors
Item 1A. Risk Factors
Except as set forth below, there have been no material changes from the information set forth in “Item 1A. Risk Factors” in the Form 10-K.
The novel coronavirus (COVID-19) pandemic could adversely impact our business, results of operations, cash flows, financial condition and liquidity.
The global spread of the novel coronavirus (COVID-19) has created significant volatility, uncertainty and economic disruption. Individually and collectively, the consequences of the COVID-19 pandemic could adversely impact our business, results of operations, cash flows, financial condition and liquidity. The extent to which the COVID-19 pandemic ultimately impacts our business, results of operations, cash flows, financial condition and liquidity will depend on future developments, which are highly uncertain and cannot be predicted, including, but not limited to:
•
the duration and scope of the pandemic;
•
governmental, business and individual actions taken in response to the pandemic and the impact of those actions on global economic activity;
•
the impact of business disruptions and reductions in headcount on our clients and the resulting impact on their demand for our services and solution;
•
the increase in business failures among businesses that we serve;
•
our clients’ ability to pay for our services and solutions; and
•
our ability to provide our services and solutions, including as a result of our employees or our clients’ employees working remotely and/or closures of offices and facilities.
Across many industries, temporary and permanent business closures as well as business occupancy limitations have resulted in significant layoffs and employee furloughs since late March 2020. Because we charge our clients on a per-employee basis for certain services we provide, decreases in headcount at our clients negatively impact our results of operations. Further, at the onset of the COVID-19 pandemic, a limited number of new clients temporarily delayed service implementation. As the COVID-19 pandemic continues to create uncertainty and the potential for ongoing business disruptions, we may experience similar client-driven delays in service implementation in the future.
In order to spur economic activity to counteract the adverse effects of the COVID-19 pandemic, the Federal Open Market Committee lowered its target for the federal funds rate in March 2020. In addition, a provision in the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) allows employers to delay the payment of the employer’s share of Social Security taxes to a future date. To the extent our clients make such election, we are collecting less money from them to hold and then remit to the appropriate taxing authorities, which adversely affects our average funds held for clients balance and, consequently, interest earned on funds held for clients. Significantly lower average interest rates in 2020, combined with the lack of growth of the average funds held for clients balance due to lower employee headcount at our clients as well as clients electing the Social Security tax deferral under the CARES Act, had a negative effect on interest earned on funds held for clients and, consequently, recurring revenue growth for the three and nine months ended September 30, 2020. We expect that the foregoing adverse economic factors will continue to have a negative impact on recurring revenues in future periods for so long as such conditions persist. Further, the impact of the pandemic on our recurring revenues combined with our deliberate, increased level of investment to drive the growth of our business may negatively affect net income.
Beginning in February 2020, we took various actions in order to minimize the risk of COVID-19 to our employees, our clients, and the communities in which we operate. Our remote work arrangements may create operational challenges and may result in increased costs related to investments in technology. As of September 30, 2020, 95% of our employees were working remotely.
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Furthermore, we have prohibited all business-related travel until further notice and our salesforce is conducting all sa les meetings virtually. If clients and client prospects are not as willing or available to engage via video conference and teleconference, t he shift from in-person to virtual sales meetings could negatively affect our sales efforts, impede client acquisition and lengthen our sales cycles, which would negatively impact our business and results of operations and could impact our financial condition in the future.
Even after the COVID-19 outbreak has subsided, depending upon its duration and frequency of recurrence, and the governmental policies in response thereto, we may continue to experience materially adverse impacts to our business as a result of its global economic impact, including any recession that may occur or be continuing as a result. We continue to monitor and evaluate the extent to which COVID-19 has impacted us and our employees and clients, and the extent to which it and other emerging developments are expected to impact us in the future.
Our financial results may fluctuate due to many factors, some of which may be beyond our control.
Our results of operations, including our revenues, costs of revenues, administrative expenses, operating income, cash flow and deferred revenue, may vary significantly in the future, and the results of any one period should not be relied upon as an indication of future performance. Fluctuations in our financial results may negatively impact the value of our common stock. Our financial results may fluctuate as a result of a variety of factors, many of which are outside of our control, and as a result, may not fully reflect the underlying performance of our business. Factors that may cause our financial results to fluctuate from period to period include, without limitation:
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our ability to attract new clients or sell additional applications to our existing clients;
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the number of new clients and their employees, as compared to the number of existing clients and their employees in a particular period;
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the mix of clients between small, mid-sized and large organizations;
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the extent to which we retain existing clients and the expansion or contraction of our relationships with them;
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the mix of applications sold during a period;
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changes in our pricing policies or those of our competitors;
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seasonal factors affecting payroll processing, demand for our applications or potential clients’ purchasing decisions;
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the amount and timing of operating expenses, including those related to the maintenance and expansion of our business, operations and infrastructure;
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the timing and success of new applications introduced by us and the timing of expenses related to the development of new applications and technologies;
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the timing and success of current and new competitive products and services offered by our competitors;
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economic conditions affecting our clients, including their ability to outsource HCM solutions and hire employees;
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business disruptions caused by pandemics such as the COVID-19 outbreak;
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changes in laws, regulations or policies affecting our clients’ legal obligations and, as a result, demand for certain applications;
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changes in the competitive dynamics of our industry, including consolidation among competitors or clients;
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our ability to manage our existing business and future growth, including expenses related to our data centers and the expansion of such data centers and the addition of new offices;
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the effects and expenses of acquisition of third-party technologies or businesses and any potential future charges for impairment of goodwill resulting from those acquisitions;
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inclement weather or natural disasters, including but not limited to tornadoes, hurricanes, fires, earthquakes and floods;
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network outages or security breaches; and
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general economic, industry and market conditions.
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Item 2. Unregistered Sale s of Equity Securities and Use of Proceeds
Total Number of Shares Purchased
Average Price Paid per Share
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)
Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (1)
July 1 - 31, 2020 (2)
8,894
$
318.28
8,894
$
174,800,000
August 1 - 31, 2020 (2)
63
$
295.84
63
$
172,000,000
September 1 - 30, 2020
—
$
—
—
$
172,000,000
Total
8,957
8,957
(1)
Pursuant to a stock repurchase plan announced on November 20, 2018, we were authorized to purchase (in the aggregate) up to $150.0 million of our common stock in open market purchases, privately negotiated transactions or by other means. On March 12, 2020, we announced that our Board of Directors increased the availability under the existing stock repurchase plan to $250.0 million and extended the expiration date to March 12, 2022.
(2)
Consists of shares withheld to satisfy tax withholding for certain employees upon the vesting of restricted stock.
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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
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. (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K dated June 5, 2020, filed with the SEC on June 8, 2020).
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).
31.1*
Certification of the Chief Executive Officer of the Company, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*
Certification of the Chief Financial Officer of the Company, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1**
Certification of the Chief Executive Officer and Chief Financial Officer of the Company, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS
Inline XBRL Instance Document – the XBRL Instance Document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH*
Inline XBRL Taxonomy Extension Schema Document.
101.CAL*
Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF*
Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB*
Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE*
Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
*
Filed herewith.
**
The certifications attached as Exhibit 32.1 are not deemed “filed” with the SEC and are not to be incorporated by reference into any filing of Paycom Software, Inc. under the Securities Act whether made before or after the date of this Quarterly Report on Form 10-Q, irrespective of any general incorporation language contained in such filing.
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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 5, 2020
By:
/s/ Chad Richison
Chad Richison
President and Chief Executive Officer
(Principal Executive Officer)
Date: November 5, 2020
By:
/s/ Craig E. Boelte
Craig E. Boelte
Chief Financial Officer
(Principal Accounting Officer and Principal Financial Officer)
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Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.