Name: Paycom Software Inc. (NYSE:PAYC) | Cash Flow Statement
Creator: Stock Analysis on Net

Cash Flow Statement

The cash flow statement provides information about a company cash receipts and cash payments during an accounting period, showing how these cash flows link the ending cash balance to the beginning balance shown on the company balance sheet.

The cash flow statement consists of three parts: cash flows provided by (used in) operating activities, cash flows provided by (used in) investing activities, and cash flows provided by (used in) financing activities.

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Paycom Software Inc., consolidated cash flow statement

US$ in thousands

12 months ended:	Dec 31, 2022	Dec 31, 2021	Dec 31, 2020	Dec 31, 2019	Dec 31, 2018
Net income	281,389)	195,960)	143,453)	180,576)	137,065)
Depreciation and amortization	92,699)	67,222)	53,373)	42,211)	29,657)
Accretion of discount on available-for-sale securities	(1,020)	(452)	(1,563)	(940)	(1,112)
Non-cash marketing expense	1,734)	1,051)	—)	—)	—)
(Gain) loss on disposition of property and equipment	(150)	146)	—)	—)	—)
Amortization of debt issuance costs	847)	36)	36)	35)	32)
Stock-based compensation expense	94,898)	97,506)	90,108)	47,268)	36,576)
Cash paid for derivative settlement	205)	(741)	(613)	(81)	(188)
(Gain) loss on derivative	(1,559)	(662)	1,993)	1,456)	(479)
Deferred income taxes, net	(3,210)	32,906)	21,381)	21,011)	21,077)
Other	(206)	—)	—)	—)	—)
Accounts receivable	(13,353)	(360)	168)	(5,884)	(1,838)
Prepaid expenses	(6,497)	(5,875)	(4,293)	(5,903)	(2,676)
Inventory	(224)	481)	(41)	(403)	(306)
Other assets	(13,907)	(7,862)	(1,720)	(3,555)	(762)
Deferred contract costs	(122,440)	(103,356)	(89,776)	(76,204)	(60,730)
Accounts payable	11,676)	(660)	1,529)	(221)	1,079)
Income taxes, net	10,830)	(5,966)	(6,427)	(58)	3,085)
Accrued commissions and bonuses	6,082)	8,654)	1,360)	1,672)	1,086)
Accrued payroll and vacation	10,764)	9,730)	9,659)	4,129)	3,726)
Deferred revenue	15,990)	14,600)	10,582)	11,593)	13,027)
Accrued expenses and other current liabilities	555)	17,004)	(2,002)	7,561)	6,498)
Changes in operating assets and liabilities	(100,524)	(73,610)	(80,961)	(67,273)	(37,811)
Adjustments to reconcile net income to net cash provided by operating activities	83,714)	123,402)	83,754)	43,687)	47,752)
Net cash provided by operating activities	365,103)	319,362)	227,207)	224,263)	184,817)
Purchases of investments from funds held for clients	(268,718)	(398,819)	(332,756)	(195,811)	(145,011)
Proceeds from investments from funds held for clients	382,230)	267,341)	308,981)	69,200)	155,500)
Net change in funds held for clients	—)	—)	—)	—)	112,037)
Purchases of intangible assets	(4,120)	(5,500)	—)	—)	—)
Purchases of property and equipment	(132,678)	(120,692)	(94,102)	(92,934)	(59,906)
Net cash (used in) provided by investing activities	(23,286)	(257,670)	(117,877)	(219,545)	62,620)
Proceeds from the issuance of debt	29,000)	—)	—)	—)	—)
Repurchases of common stock	(94,652)	—)	(52,040)	—)	(105,188)
Withholding taxes paid related to net share settlements	(5,171)	(65,580)	(62,811)	(42,528)	(20,248)
Payments on long-term debt	(29,287)	(1,775)	(1,775)	(1,775)	(888)
Net change in client funds obligation	361,133)	233,079)	(49,283)	694,991)	(121,414)
Payment of debt issuance costs	(6,436)	—)	—)	(16)	(58)
Net cash provided by (used in) financing activities	254,587)	165,724)	(165,909)	650,672)	(247,796)
Increase (decrease) in cash, cash equivalents, restricted cash and restricted cash equivalents	596,404)	227,416)	(56,579)	655,390)	(359)
Cash, cash equivalents, restricted cash and restricted cash equivalents, beginning of period	1,812,691)	1,585,275)	1,641,854)	986,464)	46,077)
Cash, cash equivalents, restricted cash and restricted cash equivalents, end of period	2,409,095)	1,812,691)	1,585,275)	1,641,854)	45,718)

Based on: 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31).

Operating cash flow demonstrates a consistent upward trajectory over the five-year period, growing from 184.8 million US dollars in 2018 to 365.1 million US dollars in 2022. This growth is supported by a general increase in net income, which more than doubled from 137.1 million US dollars to 281.4 million US dollars, despite a temporary contraction in 2020.

Cash Flow from Operating Activities: Net cash provided by operating activities consistently exceeds net income, indicating a high quality of earnings driven by significant non-cash adjustments. Depreciation and amortization expenses grew steadily from 29.7 million US dollars in 2018 to 92.7 million US dollars in 2022. Stock-based compensation also represents a substantial non-cash add-back, peaking at 97.5 million US dollars in 2021. However, these gains are partially offset by a growing deficit in operating assets and liabilities, which expanded from a negative 37.8 million US dollars in 2018 to a negative 100.5 million US dollars in 2022.
Working Capital and Contractual Costs: A primary driver of cash outflow within operating activities is the steady increase in deferred contract costs, which grew from 60.7 million US dollars in 2018 to 122.4 million US dollars in 2022. This suggests an acceleration in the capitalization of costs associated with acquiring or implementing new contracts. Other assets also showed a marked increase in cash absorption, reaching 13.9 million US dollars in 2022.
Investing Activities and Capital Expenditures: Capital expenditures for property and equipment have increased every year, rising from 59.9 million US dollars in 2018 to 132.7 million US dollars in 2022, indicating a scaling of physical or technical infrastructure. The investing section is also characterized by high volatility in client fund investments, with proceeds and purchases fluctuating significantly, reflecting the nature of funds held for clients.
Financing Activities and Liquidity Position: Financing activities show a strategic use of capital, with intermittent large-scale repurchases of common stock, notably 105.2 million US dollars in 2018 and 94.7 million US dollars in 2022. The company's liquidity position has strengthened dramatically, with cash and cash equivalents increasing from 45.7 million US dollars at the end of 2018 to 2.4 billion US dollars by the end of 2022. This accumulation is heavily influenced by fluctuations in the net change in client funds obligations, particularly the large inflows observed in 2019 and 2022.

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