What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2021-08-05 compared with 2021-05-06 · 139 added, 89 removed, 419 unchanged (35% of the section changed)

3 unchanged sentences

(in thousands, except per share amounts)

March 31, 2021

June 30, 2021

December 31, 2020

9 unchanged sentences

Property and equipment, net

Intangible assets, net

Long-term deferred contract costs

2 unchanged sentences

Accounts payable

Income tax payable

Accrued commissions and bonuses

14 unchanged sentences

Stockholders’ equity:

Common stock, $ 0.01 par value ( 100,000 shares authorized, 61,864 and 61,861 shares issued at March 31, 2021 and December 31, 2020, respectively;

57,741 and 57,739 shares outstanding at March 31, 2021 and December 31, 2020, respectively)

Common stock, $ 0.01 par value ( 100,000 shares authorized, 62,135 and 61,861 shares issued at June 30, 2021 and December 31, 2020, respectively;

57,918 and 57,739 shares outstanding at June 30, 2021 and December 31, 2020, respectively)

Additional paid-in capital

Retained earnings

Treasury stock, at cost ( 4,123 and 4,122 shares at March 31, 2021 and December 31, 2020, respectively)

Treasury stock, at cost ( 4,217 and 4,122 shares at June 30, 2021 and December 31, 2020, respectively)

Total stockholders’ equity

4 unchanged sentences

(in thousands, except per share amounts)

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Implementation and other

15 unchanged sentences

Income before income taxes

Provision for income taxes

Provision (benefit) for income taxes

Earnings per share, basic

13 unchanged sentences

Balances at March 31, 2020

Vesting of restricted stock

Stock-based compensation

Repurchases of common stock

Balances at June 30, 2020

Treasury Stock

6 unchanged sentences

Balances at March 31, 2021

Vesting of restricted stock

Stock-based compensation

Repurchases of common stock

Balances at June 30, 2021

See accompanying notes to the unaudited consolidated financial statements.

2 unchanged sentences

(in thousands)

Three Months Ended March 31,

Six Months Ended June 30,

Cash flows from operating activities

2 unchanged sentences

Accretion of discount on available-for-sale securities

Non-cash marketing expense

Loss on disposition of property and equipment

19 unchanged sentences

Purchases of property and equipment

Net cash provided by (used in) investing activities

Net cash used in investing activities

Cash flows from financing activities

8 unchanged sentences

Cash, cash equivalents, restricted cash and restricted cash equivalents, end of period

Three Months Ended March 31,

Six Months Ended June 30,

Reconciliation of cash, cash equivalents, restricted cash and restricted cash equivalents

25 unchanged sentences

These unaudited consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and related notes presented in the Form 10-K.

The results of operations for the three months ended March 31, 2021 are not necessarily indicative of the results expected for the full year.

The results of operations for the three and six months ended June 30, 2021 are not necessarily indicative of the results expected for the full year.

Recently Adopted Accounting Pronouncements

19 unchanged sentences

GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes.

Significant estimates include income taxes, loss contingencies, the useful life of property and equipment, the life of our client relationships, the fair value of our stock-based awards and the fair value of our financial instruments and goodwill.

These estimates are based on historical experience where applicable and other assumptions that management believes are reasonable under the circumstances.

3 unchanged sentences

(tabular dollars and shares in thousands, except per share amounts)

Prior Period Reclassifications

Certain immaterial prior period amounts have been reclassified to conform to the current period presentation.

Our revenues are seasonal in nature.

13 unchanged sentences

The client funds obligation represents liabilities that will be repaid within one year of the consolidated balance sheet date.

As of March 31, 2021 and December 31, 2020, the funds held for clients were invested in money market funds, demand deposit accounts, commercial paper with a maturity duration less than three months and certificates of deposit.

As of June 30, 2021 and December 31, 2020, the funds held for clients were invested in money market funds, demand deposit accounts, commercial paper with a maturity duration less than three months and certificates of deposit.

Short-term investments in commercial paper and certificates of deposit with an original maturity duration greater than three months are classified as available-for-sale securities, and are also included within the funds held for clients line item in the consolidated balance sheets.

4 unchanged sentences

Since the initial authorization of the stock repurchase plan, our Board of Directors has amended and extended and authorized new stock repurchase plans from time to time.

Most recently, in March 2020, our Board of Directors authorized the repurchase of up to $ 250.0 million of our common stock.

As of March 31, 2021, there was $ 134.9 million available for repurchases under our stock repurchase plan.

Most recently, in May 2021, our Board of Directors authorized the repurchase of up to $ 300.0 million of our common stock.

As of June 30, 2021, there was $ 299.5 million available for repurchases under our stock repurchase plan.

Our stock repurchase plan may be suspended or discontinued at any time.

The actual timing, number and value of shares repurchased depends on a number of factors, including the market price of our common stock, general market and economic conditions, shares withheld for taxes associated with the vesting of restricted stock and other corporate considerations.

The current stock repurchase plan will expire on March 12, 2022 .

During the three months ended March 31, 2021, we repurchased an aggregate of 919 shares of our common stock at an average cost of $ 410.07 per share, all of which were shares withheld to satisfy tax withholding obligations for certain employees upon the vesting of restricted stock.

The current stock repurchase plan will expire on May 13, 2023 .

During the six months ended June 30, 2021, we repurchased an aggregate of 94,997 shares of our common stock at an average cost of $ 340.59 per share, all of which were shares withheld to satisfy tax withholding obligations for certain employees upon the vesting of restricted stock.

Recently Issued Accounting Pronouncements

5 unchanged sentences

If LIBOR ceases to exist, we may need to renegotiate our loan documents and we cannot predict what alternative index would be negotiated with our lenders.

ASU 2020-04 is currently effective and upon adoption may be applied prospectively to contract modifications made on or before December 31, 2022.

We are currently assessing the impact that this guidance will have on our consolidated financial statements.

In January 2021, the FASB issued ASU No.

2021-01, “Reference Rate Reform (Topic 848) Scope” (“ASU 2021-01”), which clarifies that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to

ASU 2020-04 is currently effective and upon adoption may be

Paycom Software, Inc.

1 unchanged sentence

(tabular dollars and shares in thousands, except per share amounts)

derivative instruments that are affected by the discounting transition.

applied prospectively to contract modifications made on or before December 31, 2022.

We are currently assessing the impact that this guidance will have on our consolidated financial statements .

In January 2021, the FASB issued ASU No.

ASU 2021-01 amends the expedients and exceptions in Topic 848 to capture the incremental consequences of the scope clarification and to tailor the existing guidance to derivative instruments affected by the discounting transition.

8 unchanged sentences

Time and labor management includes time and attendance, scheduling/schedule exchange, time-off requests, labor allocation, labor management reports/push reporting and geofencing/geotracking.

Payroll includes our payroll and tax management, Paycom Pay®, expense management, garnishment management and GL Concierge applications.

Payroll includes Beti™, our payroll and tax management, Paycom Pay®, expense management, garnishment management and GL Concierge applications.

Talent management includes our employee self-service, compensation budgeting, performance management, executive dashboard and Paycom learning and course content applications.

7 unchanged sentences

Similarly, we do not believe it is meaningful to individually determine the standalone selling price for each application.

We consider the total price charged to a client in a given period to be indicative of the standalone selling price, as the total amount charged is within a reasonable range of prices typically charged for our goods and services for comparable classes of client groups.

Implementation and Other Revenues

14 unchanged sentences

Therefore, we do not recognize a contract asset or liability resulting from the timing of revenue recognition and invoicing.

Changes in deferred revenue related to material right performance obligations as of March 31, 2021 and 2020 were as follows:

Three Months Ended March 31,

Changes in deferred revenue related to material right performance obligations as of June 30, 2021 and 2020 were as follows:

Three Months Ended June 30,

Six Months Ended June 30,

Balance, beginning of period

19 unchanged sentences

The following tables present the asset balances and related amortization expense for these contract costs:

As of and for the Three Months Ended March 31, 2021

As of and for the Three Months Ended June 30, 2021

Capitalization

1 unchanged sentence

Costs to fulfill a contract

As of and for the Three Months Ended March 31, 2020

As of and for the Three Months Ended June 30, 2020

Capitalization

1 unchanged sentence

Costs to fulfill a contract

As of and for the Six Months Ended June 30, 2021

Capitalization

Costs to obtain a contract

Costs to fulfill a contract

As of and for the Six Months Ended June 30, 2020

Capitalization

Costs to obtain a contract

Costs to fulfill a contract

PROPERTY AND EQUIPMENT

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

March 31, 2021

June 30, 2021

December 31, 2020

8 unchanged sentences

We capitalize computer software development costs related to software developed for internal use in accordance with ASC 350-40.

For the three months ended March 31, 2021 and 2020, we capitalized $ 12.3 million and $ 9.7 million, respectively, of computer software development costs related to software developed for internal use.

For the three and six months ended June 30, 2021, we capitalized $ 13.7 million and $ 26.0 million, respectively, of computer software development costs related to software developed for internal use.

For the three and six months ended June 30, 2020, we capitalized $ 11.0 million and $ 20.7 million, respectively, of computer software development costs related to software developed for internal use.

Rental clocks included in property and equipment, net represent time clocks issued to clients under month-to-month operating leases.

As such, these items are transferred from inventory to property and equipment and depreciated over their estimated useful lives.

Paycom Software, Inc.

Notes to the Unaudited Consolidated Financial Statements

(tabular dollars and shares in thousands, except per share amounts)

We capitalize interest incurred for indebtedness related to construction in progress.

For both the three months ended March 31, 2021 and 2020, we incurred interest costs of $ 0.4 million, of which we capitalized $ 0.4 million.

Included in the construction in progress balance at March 31, 2021 and December 31, 2020 is $ 4.2 million and $ 3.5 million in retainage, respectively.

Depreciation and amortization expense for property and equipment was $ 14.9 million and $ 12.2 million for the three months ended March 31, 2021 and 2020, respectively.

As of both March 31, 2021 and December 31, 2020, goodwill was $ 51.9 million.

For the three and six months ended June 30, 2021, we incurred interest costs of $ 0.3 million and $ 0.7 million, respectively, of which we capitalized $ 0.3 million and $ 0.7 million, respectively.

For the three and six months ended June 30, 2020, we incurred interest costs of $ 0.4 million and $ 0.8 million, respectively, of which we capitalized $ 0.4 million and $ 0.8 million, respectively.

Included in the construction in progress balance at June 30, 2021 and December 31, 2020 is $ 3.9 million and $ 3.5 million in retainage, respectively.

Depreciation and amortization expense for property and equipment was $ 15.6 million and $ 30.5 million, respectively, for the three and six months ended June 30, 2021.

Depreciation and amortization expense for property and equipment was $ 13.0 million and $ 25.2 million, respectively, for the three and six months ended June 30, 2020.

GOODWILL AND INTANGIBLE ASSETS, NET

As of both June 30, 2021 and December 31, 2020, goodwill was $ 51.9 million.

We have selected June 30 as our annual goodwill impairment testing date.

We have elected to perform a qualitative analysis of the fair value of our goodwill and determined there was no impairment as of June 30, 2020.

As of March 31, 2021 and December 31, 2020, there were no indicators of impairment.

We performed a qualitative analysis of the fair value of our goodwill and determined there was no impairment as of June 30, 2021.

As of June 30, 2021 and December 31, 2020, there were no indicators of impairment.

In connection with our marketing initiatives, we have purchased the naming rights to the downtown Oklahoma City arena that is home to the Oklahoma City Thunder National Basketball Association franchise.

Under the terms of the naming rights agreement, we have committed to make estimated payments escalating annually from $ 4.0 million to $ 6.1 million through 2035.

Upon the conclusion of the initial term, the agreement may be extended upon the mutual agreement of both parties for an additional five-year period.

The cost of the naming rights has been recorded as an intangible asset with an offsetting liability as of the date of the contract.

The intangible asset is being amortized over the life of the agreement on a straight line basis commencing in June 2021.

The offsetting liability is being relieved through sales and marketing expense using the effective interest method over the life of the agreement.

All of our intangible assets other than goodwill are considered to have definite lives and, as such, are subject to amortization.

The following table presents the components of intangible assets within our consolidated balance sheets:

June 30, 2021

Weighted Average Remaining

Naming rights

December 31, 2020

Weighted Average Remaining

Amortization of intangible assets for the three and six months ended June 30, 2021 was $ 0.4 million and $ 0.4 million, respectively.

Amortization of intangible assets for the three and six months ended June 30, 2020 was less than $ 0.1 million and $ 0.1 million, respectively.

We estimate the aggregate amortization expense will be $ 2.1 million for the remainder of 2021, $ 4.0 million for 2022, and $ 3.9 million for 2023, 2024, 2025 and 2026, respectively.

Paycom Software, Inc.

3 unchanged sentences

Long-term debt consisted of the following:

March 31, 2021

June 30, 2021

December 31, 2020

7 unchanged sentences

The Term Loans mature on September 7, 2025 and bear interest, at our option, at either (a) a prime rate plus 1.0 % or (b) an adjusted LIBOR rate for the interest period in effect for such Term Loan plus 1.5 %.

As of March 31, 2021, our indebtedness of $ 28.7 million consisted solely of Term Loans made under the Term Credit Agreement.

Unamortized debt issuance costs of $ 0.2 million as of both March 31, 2021 and December 31, 2020 are presented as a direct deduction from the carrying amount of the debt liability.

As of June 30, 2021, our long-term indebtedness consisted solely of the Term Loans made under the Term Credit Agreement.

Unamortized debt issuance costs of $ 0.2 million as of both June 30, 2021 and December 31, 2020 are presented as a direct deduction from the carrying amount of the debt liability.

Under the Term Credit Agreement, we are subject to two material financial covenants, which require us to maintain a fixed charge coverage ratio of not less than 1.25 to 1.0 and a funded indebtedness to EBITDA ratio of not greater than 2.0 to 1.0.

As of March 31, 2021, we were in compliance with these covenants.

As of June 30, 2021, we were in compliance with these covenants.

On February 12, 2018 , we entered into a senior secured revolving credit agreement (the “Revolving Credit Agreement”) with JPMorgan Chase Bank, N.A.

9 unchanged sentences

Letters of credit are to be issued only to support our business operations.

As of March 31, 2021, we did no t have any borrowings outstanding under the Facility.

As of June 30, 2021, we did no t have any borrowings outstanding under the Facility.

Under the Revolving Credit Agreement, we are required to maintain a fixed charge coverage ratio of not less than 1.25 to 1.0 and a funded indebtedness to EBITDA ratio of not greater than 2.0 to 1.0 .

Additionally, the Revolving Credit Agreement contains customary affirmative and negative covenants, including covenants limiting our ability to, among other things, grant liens, incur debt, effect certain mergers, make certain investments, dispose of assets, enter into certain transactions, including swap agreements and sale and leaseback transactions, pay dividends or distributions on our capital stock, and enter into transactions with affiliates, in each case subject to customary exceptions for a facility of the size and type of the Facility.

As of March 31, 2021, we were in compliance with all covenants related to the Revolving Credit Agreement.

As of March 31, 2021 and December 31, 2020, the carrying value of our total long-term debt approximated its fair value as of such date.

As of June 30, 2021, we were in compliance with all covenants related to the Revolving Credit Agreement.

As of June 30, 2021 and December 31, 2020, the carrying value of our total long-term debt approximated its fair value as of such date.

The fair value of our long-term debt is estimated based on the borrowing rates currently available to us for bank loans with similar terms and maturities.

13 unchanged sentences

The interest rate swap agreement has a maturity date of September 7, 2025 .

For the three months ended March 31, 2021, we recorded a gain of $ 0.7 million for the change in fair value of the interest rate swap and for the three months ended March 31, 2020, we recorded a loss of $ 1.6 million, for the change in fair value of the interest rate swap.

For the three and six months ended June 30, 2021, we recorded gains of less than $ 0.1 million and $ 0.7 million, respectively, for the change in fair value of the interest rate swap, and for the three and six months ended June 30, 2020, we recorded losses of $ 0.1 million and $ 1.7 million, respectively, for the change in fair value of the interest rate swap.

The change in the fair value of the interest rate swap is included in Other income (expense), net in the consolidated statements of income.

6 unchanged sentences

These available-for-sale securities are recognized in the consolidated balance sheets at fair value, which approximates the amortized cost of the securities.

All of our available-for-sale securities had expected maturity dates of twelve months or less at June 30, 2021.

As discussed in Note 7, during the year ended December 31, 2017, we entered into an interest rate swap.

7 unchanged sentences

(tabular dollars and shares in thousands, except per share amounts)

Included in the following tables are the Company’s major categories of assets and liabilities measured at fair value on a recurring basis as of March 31, 2021 and December 31, 2020:

March 31, 2021

Included in the following tables are the Company’s major categories of assets and liabilities measured at fair value on a recurring basis as of June 30, 2021 and December 31, 2020:

June 30, 2021

Commercial paper

11 unchanged sentences

The QACA matching contributions as well as the discretionary matching and profit sharing contributions vest 100 % after two years of employment from the date of hire.

Matching contributions were $ 3.3 million and $ 2.2 million for the three months ended March 31, 2021 and 2020, respectively.

Matching contributions were $ 2.6 million and $ 5.9 million for the three and six months ended June 30, 2021, respectively.

Matching contributions were $ 2.2 million and $ 4.4 million for the three and six months ended June 30, 2020, respectively.

The ESPP has overlapping offering periods, with each offering period lasting approximately 24 months.

4 unchanged sentences

The maximum aggregate number of shares of the Company’s common stock that may be purchased by all participants under the ESPP is 2.0 million shares.

Eligible employees purchased 15,762 and 25,564 shares of the Company’s common stock under the ESPP during the three months ended March 31, 2021 and 2020, respectively.

Eligible employees purchased 24,717 and 32,764 shares of the Company’s common stock under the ESPP during the six months ended June 30, 2021 and 2020, respectively.

Compensation expense related to the ESPP is recognized on a straight-line basis over the requisite service period.

Our compensation expense related to the ESPP was $ 0.7 million and $ 0.4 million for the three months ended March 31, 2021 and 2020, respectively.

Our compensation expense related to the ESPP was $ 0.7 million and $ 1.4 million for the three and six months ended June 30, 2021, respectively.

Our compensation expense related to the ESPP was $ 0.4 million and $ 0.8 million for the three and six months ended June 30, 2020, respectively.

EARNINGS PER SHARE

9 unchanged sentences

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

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

income allocable to participating securities

9 unchanged sentences

Restricted Stock Awards

During the three months ended March 31, 2021, we issued an aggregate of 145,416 restricted shares of common stock to certain non-executive employees under the Paycom Software, Inc.

During the six months ended June 30, 2021, we issued an aggregate of 176,060 restricted shares of common stock to certain non-executive employees and non-employee members of our board of directors under the Paycom Software, Inc.

2014 Long-Term Incentive Plan (the “LTIP”), consisting of 42,934 shares subject to market-based vesting conditions (“Market-Based Shares”) and 133,126 shares subject to time-based vesting conditions (“Time-Based Shares”).

The Market-Based Shares will vest 50 % on the first date, if any, that the Company’s VWAP Value equals or exceeds $ 520 per share and 50 % on the first date, if any, that the Company’s VWAP Value equals or exceeds $ 600 per share, in each case provided that (i) such date occurs on or before the eighth anniversary of the grant date and (ii) the recipient is employed by, or providing services to, the Company on the applicable vesting date, and subject to the terms and conditions of the LTIP and the applicable restricted stock award agreement.

The Time-Based Shares will vest 21 % on a specified initial vesting date, 21 % on the first anniversary of such initial vesting date, 25 % on the second anniversary of such initial vesting date, and 33 % on the on the third anniversary of such initial vesting date, provided that the recipient is employed by, or providing services to, the Company on the applicable vesting date, and subject to the terms and conditions of the LTIP and the applicable restricted stock award agreement.

The following table summarizes restricted stock awards activity for the three months ended March 31, 2021:

The Market-Based Shares will vest 50 % on the first date, if any, that the arithmetic average of the Company’s volume weighted average price on each of the twenty consecutive trading days immediately preceding such date (the “VWAP Value”) equals or exceeds $ 520 per share and 50 % on the first date, if any, that the Company’s VWAP Value equals or exceeds $ 600 per share, in each case provided that (i) such date occurs on or before the eighth anniversary of the grant date and (ii) the recipient is employed by, or providing services to, the Company on the applicable vesting date, and subject to the terms and conditions of the LTIP and the applicable restricted stock award agreement.

The Time-Based Shares granted to non-executive employees will vest over periods ranging from three to four years , provided that the recipient is employed by, or providing services to, the Company on the applicable vesting date, and subject to the terms and conditions of the LTIP and the applicable restricted stock award agreement.

Of the 133,126 Time-Based Shares mentioned above, on May 3, 2021, we issued an aggregate of 3,558 Time-Based Shares to the non-employee members of our board of directors.

Such shares of restricted stock will cliff-vest on the seventh day following the first anniversary of the date of grant, provided that such director is providing services to the Company through the applicable vesting date, and subject to the terms and conditions of the LTIP and the applicable restricted stock award agreement .

Paycom Software, Inc.

Notes to the Unaudited Consolidated Financial Statements

(tabular dollars and shares in thousands, except per share amounts)

The following table summarizes restricted stock awards activity for the six months ended June 30, 2021:

Restricted Stock Awards

5 unchanged sentences

Unvested shares of restricted stock outstanding at December 31, 2020

Unvested shares of restricted stock outstanding at March 31, 2021

Paycom Software, Inc.

Notes to the Unaudited Consolidated Financial Statements

(tabular dollars and shares in thousands, except per share amounts)

Unvested shares of restricted stock outstanding at June 30, 2021

Performance-Based Restricted Stock Units

8 unchanged sentences

The Company’s peer group includes 34 publicly traded companies, which are reflective of the S&P 500 Software & Services index and were selected by the Compensation Committee.

The following table summarizes PSU activity for the three months ended March 31, 2021:

Weighted Average

Grant Date Fair

Unvested PSUs outstanding at December 31, 2020

Unvested PSUs outstanding at March 31, 2021 (1)

A maximum of 131,176 units could be awarded based upon Paycom’s Relative TSR over the applicable performance periods.

For the three months ended March 31, 2021 and 2020, our total compensation expense related to restricted stock awards and PSU awards, in the aggregate, was $ 23.6 million and $ 15.8 million, respectively.

The following table presents the unrecognized compensation cost and the related weighted average recognition period associated with unvested restricted stock awards and unvested PSU awards as of March 31, 2021.

Restricted Stock

Unrecognized compensation cost

Weighted average period for recognition (years)

We capitalized stock-based compensation costs related to software developed for internal use of $ 1.5 million and $ 1.6 million for the three months ended March 31, 2021 and 2020, respectively.

Paycom Software, Inc.

Notes to the Unaudited Consolidated Financial Statements

(tabular dollars and shares in thousands, except per share amounts)

COMMITMENTS AND CONTINGENCIES

As previously disclosed, since February 2019, we have received subpoenas and requests from the SEC focused on whether certain of our clients were charged, and paid, an additional amount for one or more applications for which the clients were already being charged.

In connection with this matter, we identified less than 250 affected clients, representing approximately 0.5 % of our client base as of December 31, 2020.

We have made diligent efforts to notify clients, and reached substantially all, that were affected by such charges between approximately 2011 and September 2020 and have refunded approximately $ 3.0 million, in the aggregate, to such clients.

This issue did not have a material impact on our financial results for any prior period.

The SEC staff has informed our legal counsel that its inquiry concerns our books and records and internal controls.

We cannot predict the timing, scope or outcome of this matter.

We are involved in various legal proceedings in the ordinary course of business.

Although we cannot predict the outcome of these proceedings, legal matters are subject to inherent uncertainties and there exists the possibility that the ultimate resolution of these matters could have a material adverse effect on our business, financial condition, results of operations and cash flows.

The Company’s effective income tax rate was 32.1 % and 28.7 % for the three months ended March 31, 2021 and 2020, respectively.

The higher effective tax rate for the three months ended March 31, 2021 is primarily related to an increase in nondeductible expenses.

SUBSEQUENT EVENTS

On April 2, 2021, Jeffrey D.

4 unchanged sentences

York, to, among other things, reflect the change in Mr.

York’s role, eliminate certain executive-level benefits and remove the termination and severance provisions, and (ii) forfeits and releases the performance-based restricted stock unit award granted to Mr.

York’s role, eliminate certain executive-level benefits and remove the termination and severance provisions, and (ii) forfeits and releases the PSU award granted to Mr.

York on February 10, 2021.

5 unchanged sentences

Faurot received 5,445 target PSUs that will vest based on the Company’s total stockholder return relative to a peer group of 34 publicly traded companies, subject to the terms and conditions of the LTIP and the PSU Award Agreement.

On April 27, 2021, we issued an aggregate of 26,755 restricted shares of common stock to certain non-executive employees under the LTIP consisting of Time-Based Shares that will vest in three equal tranches annually, beginning on the first anniversary of the grant date, provided that the recipient is employed by, or providing services to, the Company on the applicable vesting date, and subject to the terms and conditions of the LTIP and the applicable restricted stock award agreement.

On May 3, 2021, we issued an aggregate of 3,558 restricted shares of common stock under the LTIP to the non-employee members of our board of directors.

Paycom Software, Inc.

Notes to the Unaudited Consolidated Financial Statements

(tabular dollars and shares in thousands, except per share amounts)

The following table summarizes PSU activity for the six months ended June 30, 2021:

Weighted Average

Grant Date Fair

Unvested PSUs outstanding at December 31, 2020

Unvested PSUs outstanding at June 30, 2021 (1)

A maximum of 92,814 units could be awarded based upon Paycom’s Relative TSR over the applicable performance periods.

For the three and six months ended June 30, 2021, our total compensation expense related to restricted stock awards and PSU awards, in the aggregate, was $ 23.8 million and $ 47.4 million, respectively.

For the three and six months ended June 30, 2020, our total compensation expense related to restricted stock awards and PSU awards, in the aggregate, was $ 21.2 million and $ 37.0 million, respectively.

Restricted Stock

Unrecognized compensation cost

Weighted average period for recognition (years)

We capitalized stock-based compensation costs related to software developed for internal use of $ 1.9 million and $ 3.4 million for the three and six months ended June 30, 2021, respectively.

We capitalized stock-based compensation costs related to software developed for internal use of $ 2.1 million and $ 3.7 million for the three and six months ended June 30, 2020, respectively.

COMMITMENTS AND CONTINGENCIES

As previously disclosed, starting in February 2019, we received subpoenas and requests from the SEC focused on whether certain of our clients were charged, and paid, an additional amount for one or more applications for which the clients were already being charged.

In connection with this matter, we identified fewer than 250 affected clients, representing approximately 0.5 % of our client base as of December 31, 2020.

We have made diligent efforts to notify the affected clients and reached substantially all that were affected by such charges between approximately 2011 and September 2020.

We have refunded approximately $ 3.0 million, in the aggregate, to such clients.

We have also instituted a control aimed at preventing this situation from reoccurring.

This issue did not have a material impact on our financial results for any prior period.

In connection with this matter, we have agreed to pay a total of $ 0.25 million to the SEC to settle two accounting-related charges concerning our books and records and internal controls.

We have neither admitted nor denied the SEC’s findings with respect to these charges.

We are involved in various legal proceedings in the ordinary course of business.

The Company’s effective income tax rate was 17.9 % and 20.4 % for the six months ended June 30, 2021 and 2020, respectively.

The lower effective tax rate for the six months ended June 30, 2021 is primarily related to an increase in excess tax benefits from stock-based compensation.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements