What changed in this filing

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Item 1. Financial Statements

2022-05-05 compared with 2021-11-04 · 246 added, 243 removed, 351 unchanged (58% of the section changed)

3 unchanged sentences

(in thousands, except per share amounts)

September 30, 2021

March 31, 2022

December 31, 2021

14 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, 62,275 and 61,861 shares issued at September 30, 2021 and December 31, 2020, respectively;

57,997 and 57,739 shares outstanding at September 30, 2021 and December 31, 2020, respectively)

Common stock, $ 0.01 par value ( 100,000 shares authorized, 62,302 and 62,298 shares issued at March 31, 2022 and December 31, 2021, respectively;

58,015 and 58,012 shares outstanding at March 31, 2022 and December 31, 2021, respectively)

Additional paid-in capital

Retained earnings

Treasury stock, at cost ( 4,278 and 4,122 shares at September 30, 2021 and December 31, 2020, respectively)

Accumulated other comprehensive earnings (loss)

Treasury stock, at cost ( 4,287 and 4,286 shares at March 31, 2022 and December 31, 2021, respectively)

Total stockholders’ equity

2 unchanged sentences

Paycom Software, Inc.

Unaudited Consolidated Statements of Income

Unaudited Consolidated Statements of Comprehensive Income

(in thousands, except per share amounts)

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Implementation and other

19 unchanged sentences

Weighted average shares outstanding:

Comprehensive earnings (loss):

Unrealized net gains (losses) on available-for-sale securities

Other comprehensive income (loss), net of tax

Comprehensive earnings (loss)

See accompanying notes to the unaudited consolidated financial statements.

2 unchanged sentences

(in thousands)

Accumulated Other

Treasury Stock

Paid-in Capital

Comprehensive Loss

Stockholders’ Equity

4 unchanged sentences

Balances at March 31, 2021

Vesting of restricted stock

Stock-based compensation

Repurchases of common stock

Balances at June 30, 2020

Vesting of restricted stock

Stock-based compensation

Repurchases of common stock

Balances at September 30, 2020

Accumulated Other

Treasury Stock

Paid-in Capital

Comprehensive Loss

Stockholders’ Equity

3 unchanged sentences

Repurchases of common stock

Other comprehensive earnings (loss), net of tax

Balances at March 31, 2022

Vesting of restricted stock

Stock-based compensation

Repurchases of common stock

Balances at June 30, 2021

Vesting of restricted stock

Stock-based compensation

Repurchases of common stock

Balances at September 30, 2021

See accompanying notes to the unaudited consolidated financial statements.

2 unchanged sentences

(in thousands)

Nine Months Ended September 30,

Three Months Ended March 31,

Cash flows from operating activities

21 unchanged sentences

Cash flows from investing activities

Purchase of short-term investments from funds held for clients

Proceeds from maturities of short-term investments from funds held for clients

Purchases of intangible assets

Purchases of investments from funds held for clients

Proceeds from investments from funds held for clients

Purchases of property and equipment

Net cash used in investing activities

Net cash provided by (used in) investing activities

Cash flows from financing activities

Repurchases of common stock

Withholding taxes paid related to net share settlements

6 unchanged sentences

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

Nine Months Ended September 30,

Three Months Ended March 31,

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

10 unchanged sentences

Notes to the Unaudited Consolidated Financial Statements

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

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

ORGANIZATION AND DESCRIPTION OF BUSINESS

12 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 and nine months ended September 30, 2021 are not necessarily indicative of the results expected for the full year.

The results of operations for the three months ended March 31, 2022 are not necessarily indicative of the results expected for the full year.

Recently Adopted Accounting Pronouncements

4 unchanged sentences

The adoption of this guidance did not have a material impact on our unaudited interim consolidated financial statements.

In January 2020, we adopted ASU No.

2018-15, “Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40):

Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (a consensus of the FASB Emerging Issues Task Force)” (“ASU 2018-15”) utilizing the prospective transition method.

ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license).

The adoption of this guidance did not have a material impact on our unaudited interim consolidated financial statements.

In January 2020, we adopted ASU No.

2018-13, “Fair Value Measurement (Topic 820):

Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement” (“ASU 2018-13”).

2018-13 modifies the disclosure requirements in Topic 820, “Fair Value Measurement,” based on the FASB Concepts Statement, “Conceptual Framework for Financial Reporting – Chapter 8:

Notes to Financial Statements,” including consideration of costs and benefits.

The adoption of ASU 2018-13 removed or modified disclosure requirements retrospectively to all periods presented, whereas any new requirements have been applied prospectively from the adoption date.

The adoption of this guidance did not have a material impact on our unaudited interim consolidated financial statements.

Use of Estimates

1 unchanged sentence

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, intangible assets and goodwill.

These estimates are based on

Paycom Software, Inc.

Notes to the Unaudited Consolidated Financial Statements

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

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

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

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

Actual results could materially differ from these estimates.

Prior Period Reclassifications

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

Our revenues are seasonal in nature.

Recurring revenues include revenues relating to the annual processing of payroll forms, such as Form W-2, Form 1099, and Form 1095 and revenues from processing unscheduled payroll runs (such as bonuses) for our clients.

As payroll forms are typically processed in the first quarter of the year, first quarter revenues and margins are generally higher than in subsequent quarters.

Our revenues are seasonal in nature and generally we expect our first and fourth quarter recurring revenues to be higher than other quarters during the year.

Recurring revenues include revenues relating to the annual processing of payroll tax filing forms and ACA form filing requirements, such as Form W-2, Form 1099, and Form 1095 and revenues from processing unscheduled payroll runs (such as bonuses ) for our clients.

As payroll tax forms are typically processed in the first quarter of the year, first quarter recurring revenues and margins are positively impacted.

In addition, unscheduled payroll runs at the end of the year often result in increased recurring revenues in the fourth quarter.

These seasonal fluctuations in revenues can also have an impact on gross profits.

Historical results impacted by these seasonal trends should not be considered a reliable indicator of our future results of operations.

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 recognized at the fair value of the award.

Expense is recognized, net of estimated forfeitures, on a straight-line basis over the requisite service period.

Paycom Software, Inc.

Notes to the Unaudited Consolidated Financial Statements

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

Funds Held for Clients and Client Funds Obligation

4 unchanged sentences

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

As of September 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.

As of March 31, 2022 and December 31, 2021, the funds held for clients were invested in money market funds, demand deposit accounts, commercial paper and certificates of deposit.

Additionally, as of March 31, 2022, the funds held for clients were invested in U.S.

treasury securities with an original maturity duration of greater than one year.

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

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

treasury securities with an original maturity duration of greater than one year are also classified as available-for-sale securities and included within the funds held for clients line item in the consolidated balance sheets.

These available-for-sale securities are recorded in the consolidated balance sheets at fair value, with the difference between the amortized cost and fair value of these available-for-sale securities recorded as unrealized net gains (losses) on available-for-sale securities and are included within comprehensive earnings (loss) in the consolidated statements of comprehensive income.

Funds held for clients are classified as a current asset in the consolidated balance sheets because the funds are held solely to satisfy the client funds obligation.

4 unchanged sentences

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

As of September 30, 2021, there was $ 270.7 million available for repurchases under our stock repurchase plan.

As of March 31, 2022, there was $ 266.1 million available for repurchases under our stock repurchase plan.

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

1 unchanged sentence

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

During the nine months ended September 30, 2021, we repurchased an aggregate of 155,575 shares of our common stock at an average cost of $ 393.05 per share, all of which were shares withheld to satisfy tax withholding obligations for certain employees upon the vesting of restricted stock.

During the three months ended March 31, 2022, we repurchased an aggregate of 594 shares of our common stock at an average cost of $ 366.49 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

2 unchanged sentences

ASU 2020-04 provides temporary optional expedients and exceptions for applying U.S.

GAAP to contracts, hedging relationships and other transactions

Paycom Software, Inc.

Notes to the Unaudited Consolidated Financial Statements

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

affected by reference rate reform.

Our interest-bearing notes bear interest , at our option, at either (a) a prime rate plus 1.0 % or (b) fluctuating interest rates based on a one-month USD LIBOR rate .

Once the one-month USD LIBOR rate ceases to exist, we will have to renegotiate our loan documents and cannot currently predict what alternative index will be negotiated with our lenders.

While ASU 2020-04 is currently effective , we plan to adopt and apply ASU 2020-04 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 .

GAAP to contracts, hedging relationships and other transactions affected by reference rate reform.

As of March 31, 2022, our interest-bearing notes bore interest, at our option, at either (a) a prime rate plus 1.0 % or (b) fluctuating interest rates based on a one-month USD LIBOR rate.

When the one-month USD LIBOR rate ceased to exist, we would have had to renegotiate our loan documents.

ASU 2020-04 is currently effective and we plan to adopt and apply ASU 2020-04 prospectively to contract modifications made on or before December 31, 2022.

As of March 31, 2022, there were no contract modifications that would have been impacted by ASU 2020-04.

In January 2021, the FASB issued ASU No.

1 unchanged sentence

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.

ASU 2021-01 is currently effective and upon adoption may be applied to contract modifications that change the interest rate used for margining, discounting, or contract price alignment retrospectively as of any date from the beginning of the interim period that includes March 12, 2020, or prospectively to new modifications from any date within the interim period that includes or is subsequent to January 7, 2021, up to the date that financial statements are available to be issued.

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

Paycom Software, Inc.

Notes to the Unaudited Consolidated Financial Statements

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

period that includes or is subsequent to January 7, 2021, up to the date that financial statements are available to be issued.

As of March 31, 2022, there were no contract modifications that would have been impacted by ASU 2021-01 .

Revenues are recognized when control of the promised goods or services is transferred to our clients in an amount that reflects the consideration we expect to be entitled to for those goods or services.

3 unchanged sentences

Recurring revenues are derived primarily from our talent acquisition, time and labor management, payroll, talent management and HR management applications as well as fees charged for form ﬁlings and delivery of client payroll checks and reports.

Talent acquisition includes our applicant tracking, candidate tracker, background check, on-boarding, e-verify and tax credit services applications.

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

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.

HR management includes our document and task management, government and compliance, beneﬁts administration, benefit enrollment services, COBRA administration, personnel action forms, surveys and enhanced Affordable Care Act applications.

Talent acquisition includes our Applicant Tracking, Candidate Tracker, Enhanced Background Checks™, Onboarding, E-Verify® and Tax Credit Services applications.

Time and labor management includes Time and Attendance, Scheduling/Schedule exchange, Time-Off Requests, Labor Allocation, Labor Management Reports/Push Reporting®, Geofencing/Geotracking and Microfence™ tools and applications.

Payroll includes Beti®, Payroll and Tax Management, Paycom Pay®, Expense Management, Mileage Tracker/FAVR, Garnishment Administration and GL Concierge applications.

Talent management includes our Employee Self-Service®, Compensation Budgeting, Performance Management, Position Management, My Analytics and Paycom Learning and Content Subscriptions applications.

HR management includes our Manager on-the-Go®, Direct Data Exchange®, Ask Here, Documents and Checklists, Government and Compliance, Beneﬁts Administration/Benefits to Carrier, Benefit Enrollment Service, COBRA Administration, Personnel Action Forms and Performance Discussion Forms, Surveys, Enhanced ACA and Clue™ applications.

The performance obligations related to recurring revenues are satisfied during each client’s payroll period, with the agreed-upon fee being charged and collected as part of our processing of the client’s payroll.

9 unchanged sentences

Although these revenues are related to our recurring revenues, they represent distinct performance obligations.

Paycom Software, Inc.

Notes to the Unaudited Consolidated Financial Statements

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

Implementation activities primarily represent administrative activities that allow us to fulfill future performance obligations for our clients and do not represent servi ces transferred to the client.

However, the nonrefundable upfront fee charged to our clients results in an implied performance obligation in the form of a material right to the client related to the client’s option to renew at the end of each 30-day contract period.

4 unchanged sentences

We estimate the standalone selling price for the time clocks by maximizing the use of observable inputs such as our specific pricing practices for time clocks.

Paycom Software, Inc.

Notes to the Unaudited Consolidated Financial Statements

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

Contract Balances

1 unchanged sentence

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

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

Three Months Ended September 30,

Nine Months Ended September 30,

Changes in deferred revenue related to material right performance obligations as of March 31, 2022 and 2021 were as follows:

Three Months Ended March 31,

Balance, beginning of period

8 unchanged sentences

These capitalized costs to fulfill principally relate to upfront direct costs that are expected to be recovered through margin and that enhance our ability to satisfy future performance obligations.

The assets related to both costs to obtain, and costs to fulfill, contracts with clients are accounted for utilizing a portfolio approach, and are capitalized and amortized over the expected period of benefit, which we have determined to be the estimated client relationship of ten years.

The assets related to both costs to obtain, and costs to fulfill, contracts with clients are accounted for utilizing a portfolio approach, and are capitalized and amortized ratably over the expected period of benefit, which we have determined to be the estimated client relationship of ten years.

The expected period of benefit has been determined to be the estimated life of the client relationship primarily because we incur no new costs to obtain, or costs to fulfill, a contract upon renewal of such contract.

3 unchanged sentences

These assets are presented as deferred contract costs in the accompanying consolidated balance sheets.

Amortization expense related to costs to obtain and costs to fulfill a contract are included in the “sales and marketing” and “general and administrative” line items in the accompanying consolidated statements of income.

Paycom Software, Inc.

Notes to the Unaudited Consolidated Financial Statements

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

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

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

Capitalization

Costs to obtain a contract

Costs to fulfill a contract

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

Capitalization

Costs to obtain a contract

Costs to fulfill a contract

As of and for the Nine Months Ended September 30, 2021

As of and for the Three Months Ended March 31, 2022

Capitalization

1 unchanged sentence

Costs to fulfill a contract

As of and for the Nine Months Ended September 30, 2020

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

Capitalization

1 unchanged sentence

Costs to fulfill a contract

Paycom Software, Inc.

Notes to the Unaudited Consolidated Financial Statements

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

PROPERTY AND EQUIPMENT

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

September 30, 2021

March 31, 2022

December 31, 2021

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 and nine months ended September 30, 2021, we capitalized $ 13.2 million and $ 39.2 million, respectively, of computer software development costs related to software developed for internal use.

For the three and nine months ended September 30, 2020, we capitalized $ 11.7 million and $ 32.4 million, respectively, of computer software development costs related to software developed for internal use.

For the three months ended March 31, 2022 and 2021, we capitalized $ 15.4 million and $ 12.3 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 the three and nine months ended September 30, 2021, we incurred interest costs of $ 0.4 million and $ 1.1 million, respectively, of which we capitalized $ 0.4 million and $ 1.1 million, respectively.

For the three and nine months ended September 30, 2020, we incurred interest costs of $ 0.4 million and $ 1.1 million, respectively, of which we capitalized $ 0.4 million and $ 1.1 million, respectively.

Included in the construction in progress balance at September 30, 2021 and December 31, 2020 is $ 3.4 million and $ 3.5 million in retainage, respectively.

Depreciation and amortization expense for property and equipment was $ 16.3 million and $ 46.8 million, respectively, for the three and nine months ended September 30, 2021.

Depreciation and amortization expense for property and equipment was $ 13.8 million and $ 39.1 million, respectively, for the three and nine months ended September 30, 2020.

For the three months ended March 31, 2022 and 2021, we incurred interest costs of $ 0.3 million and $ 0.4 million, respectively, of which we capitalized $ 0.1 million and $ 0.4 million, respectively.

Included in the construction in progress balance at March 31, 2022 and December 31, 2021 is $ 0.4 million and $ 0.1 million in retainage, respectively.

Depreciation and amortization expense for property and equipment was $ 20.6 million and $ 14.9 million, for the three months ended March 31, 2022 and 2021, respectively.

GOODWILL AND INTANGIBLE ASSETS, NET

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

As of both March 31, 2022 and December 31, 2021, goodwill was $ 51.9 million.

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

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

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

As of March 31, 2022 and December 31, 2021, 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.

5 unchanged sentences

The difference between the present value of the offsetting liability and actual cash payments is being relieved through sales and marketing expense using the effective interest method over the life of the agreement.

Paycom Software, Inc.

Notes to the Unaudited Consolidated Financial Statements

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

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:

September 30, 2021

March 31, 2022

Weighted Average Remaining

2 unchanged sentences

Weighted Average Remaining

Amortization of intangible assets for the three and nine months ended September 30, 2021 was $ 1.1 million and $ 1.5 million, respectively.

Amortization of intangible assets for the three and nine months ended September 30, 2020 was less than $ 0.1 million and $ 0.2 million, respectively.

We estimate the aggregate amortization expense will be $ 1.0 million for the remainder of 2021, $ 4.0 million for 2022, and $ 3.9 million for each of 2023, 2024, 2025 and 2026, respectively.

Paycom Software, Inc.

Notes to the Unaudited Consolidated Financial Statements

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

Naming rights

Amortization of intangible assets for the three months ended March 31, 2022 and 2021 was $ 1.0 million and $ 0.1 million, respectively.

We estimate the aggregate amortization expense will be $ 3.0 million for the remainder of 2022 and $ 3.9 million for each of 2023, 2024, 2025, 2026 and 2027, respectively.

LONG-TERM DEBT, NET

Long-term debt consisted of the following:

September 30, 2021

March 31, 2022

December 31, 2021

5 unchanged sentences

and Kirkpatrick Bank made certain term loans to us (the “Term Loans”).

Our obligations under the Term Loans are secured by a mortgage and first priority security interest in our corporate headquarters property.

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

Unamortized debt issuance costs of $ 0.1 million and $ 0.2 million as of September 30, 2021 and as of December 31, 2020, respectively, 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 September 30, 2021, we were in compliance with these covenants.

Our obligations under the Term Loans were secured by a mortgage and first priority security interest in our corporate headquarters property.

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

As of March 31, 2022, our long-term indebtedness consisted solely of the Term Loans made under the Term Credit Agreement.

Unamortized debt issuance costs of $ 0.1 million as of both March 31, 2022 and December 31, 2021, are presented as a direct deduction from the carrying amount of the debt liability.

Under the Term Credit Agreement, we were subject to two material financial covenants, which required 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, 2022, we were in compliance with these covenants.

As discussed below, the Term Loans were repaid in full on May 4, 2022 and the Term Credit Agreement was terminated.

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

and Bank of America, N.A.

that provided for a senior secured revolving credit facility (the “Facility”) in the aggregate principal amount of $ 50.0 million (the “Revolving Commitment”), which could be increased to up to $ 100.0 million, subject to obtaining additional lender commitments and certain approvals and satisfying certain other conditions.

The Facility includes a $ 5.0 million sublimit for swingline loans and a $ 2.5 million sublimit for letters of credit.

The Facility was scheduled to mature on February 12, 2020 .

On April 15, 2019, we entered into the First Amendment to Revolving Credit Agreement (the “First Amendment”).

Pursuant to the First Amendment, Wells Fargo Bank, N.A., was added as a lender and the Revolving Commitment was increased to $ 75.0 million, which may be further increased to $ 125.0 million subject to obtaining additional lender commitments and certain approvals and satisfying other conditions.

The scheduled maturity date of the Facility was extended to April 15, 2022 .

Borrowings under the Facility will generally bear interest at a prime rate plus 1.0 % or, at our option, an adjusted LIBOR rate for the interest period in effect for such borrowing plus 1.5 %.

The proceeds of the loans and letters of credit under the Facility are to be used only for our general business purposes and working capital.

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

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

As of September 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.

that provided for a senior secured revolving credit facility (the “2018 Facility”) in the aggregate principal amount of $ 50.0 million (the “2018 Revolving Commitment”), which could have been increased to up to $ 100.0 million, subject to obtaining additional lender commitments and certain approvals and satisfying certain other

Paycom Software, Inc.

Notes to the Unaudited Consolidated Financial Statements

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

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

The 2018 Facility include d a $ 5.0 million sublimit for swingline loans and a $ 2.5 million s ublimit for letters of credit.

The 2018 Facility was scheduled to mature on February 12, 2020 .

On April 15, 2019, we entered into the First Amendment to Revolving Credit Agreement , p ursuant to which (i) Wells Fargo Bank, N.A., was added as a lender , (ii) the 2018 Revolving Commitment was increased to $ 75.0 million, which could have been further increased to $ 125.0 million subject to obtaining additional lender commitments and certain approvals and satisfying other conditions , and ( i ii) t he scheduled maturity date of the 2018 Facility was extended to April 15, 2022 .

Borrowings under the 2018 Facility would generally have borne interest at a prime rate plus 1.0 % or, at our option, an adjusted LIBOR rate for the interest period in effect for such borrowing plus 1.5 %.

The proceeds of the loans and letters of credit under the 2018 Facility would have to have been used only for our general business purposes and working capital.

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

As of March 31, 2022, we did no t have any borrowings outstanding under the 2018 Facility.

Under the 2018 Revolving Credit Agreement, we were 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 2018 Revolving Credit Agreement contained 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 2018 Facility.

As of March 31, 2022, we were in compliance with all covenants related to the 2018 Revolving Credit Agreement.

Pursuant to its terms, the 2018 Facility matured on April 15, 2022 .

On May 4, 2022, we entered into the 2022 Revolving Credit Agreement (as defined in Note 15) and borrowed $ 29.0 million under the 2022 Facility (as defined in Note 15) to repay the Term Loans along with accrued interest, expenses and fees.

In connection with the repayment of the Term Loans, the Term Credit Agreement was terminated on May 4, 2022 .

See Note 15 for additional information regarding the 2022 Revolving Credit Agreement and 2022 Facility.

As of March 31, 2022 and December 31, 2021, the carrying value of our total long-term debt approximated its fair value as of such date.

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

DERIVATIVE INSTRUMENTS

1 unchanged sentence

We do not hold derivative instruments for trading or speculative purposes.

The interest rate swap agreement effectively converts a portion of the variable interest rate payments to fixed interest rate payments.

The interest rate swap agreement effectively converted a portion of the variable interest rate payments to fixed interest rate payments.

We account for our derivatives under ASC Topic 815, “Derivatives and Hedging,” and recognize all derivative instruments in the consolidated balance sheets at fair value as either short-term or long-term assets or liabilities based on their anticipated settlement date.

1 unchanged sentence

We have elected not to designate our interest rate swap as a hedge;

therefore, changes in the fair value of the derivative instrument are recognized in our consolidated statements of income within Other income (expense), net.

The objective of the interest rate swap is to reduce the variability in the forecasted interest payments of the Term Loans, which is based on a one-month USD LIBOR rate versus a fixed interest rate of 2.54 % on a notional value of $ 35.5 million.

therefore, changes in the fair value of the derivative instrument are recognized in our consolidated statements of comprehensive income within Other income (expense), net.

The objective of the interest rate swap was to reduce the variability in the forecasted interest payments of the Term Loans, which was based on a one-month USD LIBOR rate versus a fixed interest rate of 2.54 % on a notional value of $ 35.5 million.

Under the terms of the interest rate swap agreement, we receive quarterly variable interest payments based on the LIBOR rate and pay interest at a fixed rate.

As further discussed in Note 6, on May 4, 2022, we repaid the Term Loans and terminated the Term Credit Agreement.

In connection with the repayment of the Term Loans, we borrowed funds under the 2022 Facility, as discussed in Note 15.

The interest rate swap remains outstanding to offset the interest rate variability associated with the outstanding borrowings under the 2022 Facility.

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

For the three and nine months ended September 30, 2021, we recorded gains of $ 0.2 million and $ 0.9 million, respectively, for the change in fair value of the interest rate swap, and for the three months ended September 30, 2020, we recorded a gain of $ 0.1 million and for the nine months ended September 30, 2020, we recorded a loss of $ 1.6 million, 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.

For the three months ended March 31, 2022 and 2021, we recorded gains of $ 1.3 million and $ 0.7 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 comprehensive income.

Paycom Software, Inc.

Notes to the Unaudited Consolidated Financial Statements

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

CORPORATE INVESTMENTS AND FUNDS HELD FOR CLIENTS

The tables below present our cash and cash equivalents, the funds held for clients’ cash and cash equivalents as well as the investments that were included within funds held for clients on the consolidated balance sheets:

March 31, 2022

Type of issue

Amortized cost

Gross unrealized gains

Gross unrealized losses (1)

Cash and cash equivalents

Funds held for clients ’ cash and cash equivalents

Available-for-sale securities (2) :

Commercial paper

Certificates of deposit

treasury securities

Total investments

December 31, 2021

Type of issue

Amortized cost

Gross unrealized gains

Gross unrealized losses

Cash and cash equivalents

Funds held for clients ’ cash and cash equivalents

Available-for-sale securities (2) :

Commercial paper

Certificates of deposit

Total investments

These securities have been in an unrealized loss position for a period of less than 12 months.

All available-for-sale securities were included within funds held for clients.

We did not make any reclassification adjustments out of accumulated other comprehensive income for realized gains or losses on the sale or maturity of available-for-sale securities for the three months ended March 31, 2022 or 2021.

There were no realized gains or losses on the sale of available-for-sale securities for the three months ended March 31, 2022 or 2021.

We regularly review the composition of our investment portfolio and did no t recognize any credit impairment losses during the three months ended March 31, 2022 or during the three months ended March 31, 2021.

All of our commercial paper securities held an A-2 rating or better as of March 31, 2022 and the U.S.

treasury securities held a rating of AAA as of March 31, 2022.

Expected maturities of available-for-sale securities at March 31, 2022 are as follows:

Expected maturity

Amortized cost

One year or less

One year to five years

Total available-for-sale securities

Paycom Software, Inc.

Notes to the Unaudited Consolidated Financial Statements

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

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 due to the short-term nature of the instruments.

The carrying amount of cash and cash equivalents, accounts receivable, accounts payable and client funds obligation approximates fair value due to the short-term nature of the instruments.

See Note 6 for discussion of the fair value of our debt.

As discussed in Note 2, we invest the funds held for clients in money market funds, demand deposit accounts, commercial paper with a maturity duration less than three months and certificates of deposit, and classify these items as cash and cash equivalents within the funds held for clients line item in the consolidated balance sheets.

As discussed in Note 2, we invest funds held for clients in money market funds, demand deposit accounts, commercial paper with a maturity duration less than three months and certificates of deposit, and classify these items as cash and cash equivalents within the funds held for clients line item in the consolidated balance sheets.

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 September 30, 2021.

These available-for-sale securities are recognized in the consolidated balance sheets at fair value, with the difference between the amortized cost and fair value of these available-for-sale securities recorded as unrealized net gains (losses) within comprehensive earnings (loss) in our consolidated statements of comprehensive income.

See Note 8 for additional information.

We also invest funds held for clients in U.S.

treasury securities with initial maturity durations greater than one year.

treasury securities are classified as available-for-sale securities and included within the funds held for clients line item.

The unrealized gains and losses associated with these available-for-sale securities are included within comprehensive earnings (loss) in our consolidated statements of comprehensive income.

See Note 8 for additional information.

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

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Level 3 – Unobservable inputs in which there is little or no market data

Paycom Software, Inc.

Notes to the Unaudited Consolidated Financial Statements

(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 September 30, 2021 and December 31, 2020:

September 30, 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 March 31, 2022 and December 31, 2021:

March 31, 2022

Commercial paper

Certificates of deposit

treasury securities

Interest rate swap

3 unchanged sentences

Interest rate swap

Paycom Software, Inc.

Notes to the Unaudited Consolidated Financial Statements

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

EMPLOYEE SAVINGS PLAN AND EMPLOYEE STOCK PURCHASE PLAN

4 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 $ 2.9 million and $ 8.8 million for the three and nine months ended September 30, 2021, respectively.

Matching contributions were $ 1.9 million and $ 6.3 million for the three and nine months ended September 30, 2020, respectively.

Matching contributions were $ 3.5 million and $ 3.3 million for the three months ended March 31, 2022 and 2021, 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 31,824 and 42,966 shares of the Company’s common stock under the ESPP during the nine months ended September 30, 2021 and 2020, respectively.

Eligible employees purchased 19,133 and 15,762 shares of the Company’s common stock under the ESPP during the three months ended March 31, 2022 and 2021, respectively.

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

Our compensation expense related to the ESPP was $ 0.6 million and $ 2.0 million for the three and nine months ended September 30, 2021, respectively.

Our compensation expense related to the ESPP was $ 0.7 million and $ 1.5 million for the three and nine months ended September 30, 2020, respectively.

Our compensation expense related to the ESPP was $ 0.6 million and $ 0.7 million for the three months ended March 31, 2022 and 2021, respectively.

EARNINGS PER SHARE

3 unchanged sentences

Certain unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents are participating securities and, therefore, are included in computing earnings per share pursuant to the two-class method.

The unvested shares of restricted stock granted in 2015 are considered participating securities, while all other unvested shares of restricted stock are not considered participating securities.

As of December 31, 2020, all shares of restricted stock granted in 2015 have vested.

Paycom Software, Inc.

Notes to the Unaudited Consolidated Financial Statements

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

For the time periods in the table below, we did not have any participating securities.

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

Three Months Ended September 30,

Nine Months Ended September 30,

income allocable to participating securities

Income allocable to common shares

undistributed earnings allocable to participating securities

undistributed earnings reallocated to participating securities

Numerator for diluted earnings per share

Three Months Ended March 31,

Basic weighted average shares outstanding

2 unchanged sentences

Earnings per share:

STOCK-BASED COMPENSATION

Restricted Stock Awards

During the nine months ended September 30, 2021, we issued an aggregate of 180,735 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 137,801 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 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 137,801 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 .

In September 2021, Janet Haugen tendered her resignation from our Board of Directors.

As a result of Ms.

Haugen’s resignation, the compensation committee of the Board of Directors determined to accelerate the vesting of 297 shares of Ms.

Haugen’s unvested shares of restricted stock, which was approximately one-half of the shares of restricted stock awarded to Ms.

Haugen in 2021.

Subsequent to Ms.

Haugen’s resignation, the Board of Directors appointed Sharen Turney to serve as a Class I director to fill the resulting vacancy.

Turney received a prorated portion of the standard compensation package for the Company’s non-management directors, which included 230 shares of restricted stock, and which will vest on May 10, 2022.

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 nine months ended September 30, 2021:

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

STOCK-BASED COMPENSATION

Restricted Stock Awards

During the three months ended March 31, 2022, we issued an aggregate of 209,203 restricted shares of common stock to certain non-executive employees under the Paycom Software, Inc.

2014 Long-Term Incentive Plan (as amended, the “LTIP”), consisting of 59,503 shares subject to market-based vesting conditions (“Market-Based Shares”) and 149,700 shares subject to time-based vesting conditions (“Time-Based Shares”).

Market-Based Shares will vest 50 % on the first date, if any, that the arithmetic average of the Company’s volume weighted average price on each of the twenty consecutive trading days immediately preceding such date (the “VWAP Value”) equals or exceeds $ 484 per share and 50 % on the first date, if any, that the Company’s VWAP Value equals or exceeds $ 559 per share, in each case provided that (i) such date occurs on or before the eighth anniversary of the grant date and (ii) the recipient is employed by, or providing services to, the Company on the applicable vesting date, and subject to the terms and conditions of the LTIP and the applicable restricted stock award agreement.

The majority of 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, 2022:

Restricted Stock Awards

Weighted Average

Grant Date Fair

Value Per Share

Weighted Average

Grant Date Fair

Value Per Share

Unvested shares of restricted stock outstanding at December 31, 2021

Unvested shares of restricted stock outstanding at September 30, 2021

The following table summarizes vesting activity for Market-Based Shares during the nine months ended September 30, 2021, the associated compensation cost recognized in connection with each vesting event and the number of shares withheld to satisfy tax withholding obligations:

Vesting Condition

Number of Shares

Cost Recognized

Shares Withheld

Market-based (Total Enterprise Value = $ 27.7 billion)

September 11, 2021

All shares withheld to satisfy tax withholding obligations are held as treasury stock.

Unvested shares of restricted stock outstanding at March 31, 2022

Performance-Based Restricted Stock Units

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and (ii) a three-year performance period commencing on January 1, 2022 and ending on December 31, 2024 (the “Three-Year Performance Period”).

Up to 25 % of the PSUs will be eligible to vest no later than March 1, 2023 , for the Two-Year Performance Period, and up to 75 % of the PSUs will be eligible to vest no later than February 29, 2024 , for the Three-Year Performance Period, provided that the grantee remains employed by or providing services to the Company on the applicable vesting date, and subject to the terms and conditions of the LTIP and the Restricted Stock Unit Award Agreement – Performance Based Vesting (the “PSU Award Agreement”).

Up to 25 % of the PSUs will be eligible to vest no later than February 29, 2024 , for the Two-Year Performance Period, and up to 75 % of the PSUs will be eligible to vest no later than March 1, 2025 , for the Three-Year Performance Period, provided that the grantee remains employed by or providing services to the Company on the applicable vesting date, and subject to the terms and conditions of the LTIP and the Restricted Stock Unit Award Agreement – Performance Based Vesting (the “PSU Award Agreement”).

The number of PSUs that will vest and be converted into shares of common stock will depend on the Company’s relative total stockholder return (“Relative TSR”), expressed as a percentile ranking of the Company’s total stockholder return (“TSR”) as compared to the Company’s peer group set forth in the PSU Award Agreement.

For purposes of the PSU Awards, TSR is determined by dividing (i) the sum of (A) the average daily volume weighted average price (or “VWAP” as defined in the PSU Award Agreement) of a share of the Company’s common stock or the common stock of a peer company, as applicable, during the final 60 trading day period of the applicable performance period, less (B) the average VWAP of a share of the Company’s common stock or the common stock of a peer company, as applicable, during the 60 trading day period ending on December 31, 2020, plus (C) the sum of all dividends which are paid by the Company (or the member of the peer group) to its stockholders, assuming such dividends are reinvested in the applicable company through the applicable performance period, by (ii) the average VWAP of a share of the Company’s common stock or the common stock of a peer company, as applicable, during the 60 trading day period ending on December 31, 2020.

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.

On April 2, 2021, Jeffrey D.

York resigned from his position as Chief Sales Officer of the Company and accepted a new role as Leadership Strategist of the Company.

In connection with the change in Mr.

York’s role, the Company and Mr.

York entered into a letter agreement that, among other things, (i) amends that certain Amended and Restated Executive Employment Agreement, dated March 9, 2020, by and between the Company and Mr.

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

York’s role, eliminate

For purposes of the 2022 PSU Awards, TSR is determined by dividing (i) the sum of (A) the average daily volume weighted average price (or “VWAP” as defined in the PSU Award Agreement) of a share of the Company’s common stock or the common stock of a peer company, as applicable, during the final 60 trading day period of the applicable performance period, less (B) the average VWAP of a share of the Company’s common stock or the common stock of a peer company, as applicable, during the 60 trading day period ending on December 31, 2021, plus (C) the sum of all dividends which are paid by the Company (or the member of the peer group) to its stockholders, assuming such dividends are reinvested in the applicable company through the applicable performance period, by (ii) the average VWAP of a share of the Company’s common stock or the common stock of a peer company,

Paycom Software, Inc.

Notes to the Unaudited Consolidated Financial Statements

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

certain executive-level benefits and remove the termination and severance provisions, and (ii) forfeit s and release s the PSU award granted to Mr.

York on February 10, 2021.

On April 2, 2021, the Board of Directors appointed Holly Faurot to succeed Mr.

York as Chief Sales Officer of the Company.

In connection with her appointment, Mrs.

Faurot was granted an award of PSUs pursuant to the LTIP.

Consistent with the PSU awards granted to certain other executive officers of the Company on February 10, 2021, Mrs.

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.

The following table summarizes PSU activity for the nine months ended September 30, 2021:

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

as applicable, during the 60 trading day period ending on December 31, 2021.

The Company’s peer group includes 35 publicly traded companies, which were reflective of the S&P 500 Software & Services index on the grant date .

The following table summarizes PSU activity for the three months ended March 31, 2022:

Weighted Average

Grant Date Fair

Value Per Unit

Unvested PSUs outstanding at December 31, 2021

Unvested PSUs outstanding at September 30, 2021 (1)

Unvested PSUs outstanding at March 31, 2022 (1)

A maximum of 221,549 units could be awarded based upon Paycom’s Relative TSR over the applicable performance periods.

For the three and nine months ended September 30, 2021, our total compensation expense related to restricted stock awards and PSU awards, in the aggregate, was $ 29.0 million and $ 76.4 million, respectively.

For the three and nine months ended September 30, 2020, our total compensation expense related to restricted stock awards and PSU awards, in the aggregate, was $ 19.5 million and $ 56.5 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 September 30, 2021.

For the three months ended March 31, 2022 and 2021, our total compensation expense related to restricted stock awards and PSU awards, in the aggregate, was $ 22.1 million and $ 23.6 million, respectively.

Restricted Stock

1 unchanged sentence

Weighted average period for recognition (years)

We capitalized stock-based compensation costs related to software developed for internal use of $ 1.7 million and $ 5.1 million for the three and nine months ended September 30, 2021, respectively.

We capitalized stock-based compensation costs related to software developed for internal use of $ 1.6 million and $ 5.3 million for the three and nine months ended September 30, 2020, respectively.

We capitalized stock-based compensation costs related to software developed for internal use of $ 1.9 million and $ 1.5 million for the three months ended March 31, 2022 and 2021, 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 paid a total of $ 0.25 million to the SEC to settle two accounting-related charges concerning our books and records and internal controls.

We 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.

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 27.9 % and 32.1 % for the three months ended March 31, 2022 and 2021, respectively.

The lower effective income tax rate for the three months ended March 31, 2022 is primarily related to a decrease in nondeductible expenses.

SUBSEQUENT EVENTS

Officer Transition

On April 14, 2022, the Company announced the departure of Jon Evans from the position of Chief Operating Officer of the Company, effective April 14, 2022.

Justin Long, the Company’s Executive Vice President of Operations, will assume Mr.

Evans’s responsibilities.

In connection with Mr.

Evans’s departure, 5,663 of the Time-Based Shares previously granted to Mr.

Evans accelerated in vesting.

The PSUs granted to Mr.

Evans in 2021 and 2022 will remain eligible for vesting based on the Company’s actual performance, but pro-rated for the number of days Mr.

Evans was employed during the applicable two-year performance periods and three-year performance periods.

Debt Agreements

As discussed in Note 6, on April 15, 2022, the 2018 Revolving Credit Agreement matured pursuant to its terms.

On May 4, 2022 (the “Closing Date”), Paycom Payroll, LLC (the “Borrower”), Software, and certain other subsidiaries of Software (collectively, the “Guarantors,” and collectively with the Borrower, the “Loan Parties”), entered into a new credit agreement

Paycom Software, Inc.

Notes to the Unaudited Consolidated Financial Statements

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

The Company’s effective income tax rate was 20.8 % and 20.3 % for the nine months ended September 30, 2021 and 2020, respectively.

The higher effective income tax rate for the nine months ended September 30, 2021 is primarily related to a decrease in excess tax benefits from stock-based compensation.

SUBSEQUENT EVENTS

On October 30, 2021, the Company’s VWAP value exceeded $ 520 per share, which resulted in the vesting of 18,727 Market-Based Shares issued on February 5, 2021.

For additional information on our stock-based compensation, see “Note 11.

Stock-Based Compensation” in this Form 10-Q.

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

(the “2022 Revolving Credit Agreement”) with Bank of America, N.A., as a lender, swingline lender and letters of credit issuer, the lenders from time to time party thereto (collectively with Bank of America, N.A., the “Lenders”), and Bank of America, N.A., as the administrative agent.

The 2022 Revolving Credit Agreement provides for a senior secured revolving credit facility (the “2022 Facility”) in the aggregate principal amount of up to $ 250.0 million, and the ability to request an incremental facility of up to an additional $ 100.0 million, subject to obtaining additional lender commitments and certain approvals and satisfying certain other conditions.

The 2022 Facility includes a $ 25.0 million sublimit for swingline loans and a $ 2.5 million sublimit for letters of credit.

The 2022 Facility is scheduled to mature on May 4, 2027 (the “Scheduled Maturity Date”).

We have the option to borrow under the 2022 Facility in the form of either base rate loans or Bloomberg Short-Term Bank Yield Index (“BSBY”) rate loans.

Each BSBY rate loan bears interest at a rate per annum equal to the BSBY rate plus (i) 1.125 % if the Company’s consolidated leverage ratio is less than 1.0 to 1.0 or (ii) 1.375 % if the Company’s consolidated leverage ratio is greater than or equal to 1.0 to 1.0.

Each base rate loan bears interest at a rate per annum equal to (x) a fluctuating rate of interest per annum equal to the highest of (i) the federal funds rate plus 0.50 %, (ii) the prime rate and (iii) the BSBY rate plus 1.0 %, subject to the interest rate floors set forth therein, plus (y) 0.125 % if the Company’s consolidated leverage ratio is less than 1.0 to 1.0, or (ii) 0.375 % if the Company’s consolidated leverage ratio is greater than or equal to 1.0 to 1.0.

We are required to pay a quarterly commitment fee at a rate of 0.20 % per annum on the daily amount of the undrawn portion of the revolving commitments under the 2022 Facility.

We are also required to pay customary letter of credit fees upon drawing any letter of credit.

The 2022 Facility provides for no scheduled principal amortization prior to the Scheduled Maturity Date.

Subject to certain conditions set forth in the 2022 Revolving Credit Agreement, we may borrow, prepay and reborrow under the 2022 Facility and terminate or reduce the Lenders’ commitments at any time prior to the Scheduled Maturity Date.

The proceeds of the loans and letters of credit under the 2022 Facility are to be used for ongoing working capital and general corporate purposes and refinancing the Term Loans.

On the Closing Date, we borrowed $ 29.0 million under the 2022 Facility to repay the Term Loans, along with accrued interest, expenses and fees.

The loan on the Closing Date bears interest at the BSBY rate plus 1.125 %.

In connection with the repayment of the Term Loans, the Term Credit Agreement was terminated on May 4, 2022 .

Under the 2022 Revolving Credit Agreement, we are required to maintain as of the end of each fiscal quarter a consolidated fixed charge coverage ratio of not less than 1.25 to 1.0 and a consolidated leverage ratio of not greater than 2.25 to 1.0.

Additionally, the 2022 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 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 2022 Facility.

Our obligations under the 2022 Facility are secured by a senior security interest in all personal property of the Loan Parties.

The events of default under the 2022 Revolving Credit Agreement include, among others, payment defaults, breaches of covenants, defaults under the related loan documents, material misrepresentations, cross defaults with certain other material indebtedness, bankruptcy and insolvency events, judgment defaults and change in control events.

The occurrence of an event of default could result in the acceleration of our obligations under the 2022 Revolving Credit Agreement, the requirement to post cash collateral with respect to letters of credit, the termination of the Lenders’ commitments and a 2.0 % increase in the rate of interest.

From time to time, the Lenders and certain of their affiliates have engaged in, and may in the future engage in, investment banking and other commercial dealings in the ordinary course of business with the Company or the Company’s affiliates.

They have received, or may in the future receive, customary fees and commissions for these transactions.

Restricted Stock Awards

On April 22, 2022, we issued an aggregate of 45,303 restricted shares of common stock to certain non-executive employees under the LTIP consisting of Time-Based Shares that will vest in three or four equal tranches annually, beginning on the first 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.

On May 2, 2022, we issued an aggregate of 4,608 restricted shares of common stock under the LTIP to the non-employee members of our board of directors.

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