Paycom Software Inc. (NYSE:PAYC)

Inventory Turnover

The inventory turnover ratio exhibits notable volatility across the periods analyzed, with a general upward trend in the most recent quarters. After fluctuating moderately between 2019 and 2021, the ratio sharply increased beginning in early 2022, reaching its highest levels in 2023. This suggests an improvement in the efficiency with which inventory is managed and sold over the last several quarters.

Receivables Turnover

The receivables turnover ratio shows significant variation, with initial high values during 2019, followed by a marked decline through to 2021. Thereafter, it partially recovers with moderate increases through 2023, though it remains below early period peaks. This pattern indicates fluctuations in collection efficiency, with recent improvements but persistent challenges relative to earlier high points.

Payables Turnover

Payables turnover has varied considerably, with a generally higher turnover ratio seen in the last few quarters of 2023 compared to prior periods. The data reveals a pattern of decreasing payables turnover through 2019 and early 2020, followed by an upward trend culminating in the highest values in late 2023, suggesting a faster payment cycle to suppliers in recent times.

Working Capital Turnover

Working capital turnover displays a declining trend over the time frame, with the ratio steadily decreasing from above 9 in early 2019 to below 3 by the latest periods in 2023. This downward trend implies diminishing efficiency in utilizing working capital to generate sales, potentially signaling increased investment in working capital or slower sales growth relative to working capital assets.

Average Inventory Processing Period

The average inventory processing period remains relatively stable, fluctuating between 1 and 4 days throughout the periods. Notably, the most recent quarters in 2023 indicate the shortest processing times at approximately 1 day, reflecting an improvement in inventory turnover speed and operational efficiency in inventory management.

Average Receivable Collection Period

This period shows variability, generally ranging from 1 to 8 days. Initially low in early 2019, it increased significantly in 2020 and 2021, peaking at 8 days, before showing improvement with a reduction to 3-4 days in 2023. This suggests that while collection cycles lengthened during the middle period, recent trends indicate better credit and collection management.

Operating Cycle

The operating cycle, reflecting the sum of inventory and receivable periods, exhibits fluctuations. It ranged from a low of 3 days to a peak of 11 days during the timeline. The most recent trend indicates a reduction to about 4 days in 2023, which points to overall improvements in the company's operating efficiency through quicker inventory turnover and receivable collection.

Average Payables Payment Period

This metric shows a wide range from 10 to 34 days, with a general pattern of lengthening during 2019 to 2021, reaching the maximum duration in late 2020 and early 2021, followed by a downward trend through 2023. The shortening payment period in recent quarters implies a swifter payment cycle to suppliers, which may impact cash flow but could strengthen supplier relationships.

Cash Conversion Cycle

The cash conversion cycle is consistently negative across all periods, ranging from -23 to -4 days. A negative cash conversion cycle suggests that the company is able to collect cash from customers and turn inventory into sales faster than it pays its suppliers, effectively using supplier credit to finance operations. The recent trend shows a slight increase in the cash cycle from -11 to -6 days in 2023, indicating a marginal lengthening but maintaining overall favorable cash flow conversion dynamics.

Cost of Revenues

The cost of revenues exhibits a generally upward trend over the observed periods. Starting from approximately $29.3 million in the first quarter of 2019, it remains relatively stable through the year, fluctuating between $25.2 million and $30.0 million. From 2020 onwards, there is a consistent increase each quarter, moving from around $29.6 million to nearly $69.0 million by the third quarter of 2023. The increases become more pronounced after 2020, indicating rising expenses related to revenue generation, which could suggest expanding operations or increased costs in service delivery.

Inventory Levels

Inventory shows considerable fluctuation throughout the periods. Values range between approximately $700 thousand and $1.6 million, without a clear directional trend. Periods of sharp increases alternate with declines, for example, a notable rise from $732 thousand in early 2022 to $1.6 million by the end of 2022, followed by a decrease back below $900 thousand in 2023. Such variability may reflect changes in inventory management practices, stock replenishment cycles, or shifting demand patterns for inventory items.

Inventory Turnover Ratio

The inventory turnover ratio demonstrates significant volatility across the quarters, with values ranging widely from about 83 to over 310 times. The early years show substantial oscillations, for instance, a decrease from 150 in late 2019 to 83 in mid-2020, followed by recovery in subsequent quarters. From 2022 onward, the turnover ratio spikes considerably, peaking above 310 by the third quarter of 2023, suggesting accelerated inventory movement relative to inventory levels. This could indicate improved efficiency in inventory utilization or faster sales cycles, particularly in recent periods.

Overall Analysis

The data reflects an operational environment with rising costs associated with revenue alongside fluctuating inventory holdings. The sharp increases in inventory turnover ratio in recent quarters suggest enhanced efficiency in managing inventory relative to sales, despite the inventory amounts themselves lacking a stable trend. The steady growth in cost of revenues while inventory shows no consistent upward or downward pattern might imply improvements in how inventory contributes to revenue generation but also highlight the increasing expenses faced by the company to maintain or grow its revenue base.

The analyzed financial data reveals notable fluctuations and trends across several quarters for the key financial indicators.

Revenues

Revenues demonstrate a generally upward trend over the presented periods, with some quarterly variability. Starting at approximately $200 million in early 2019, revenues initially declined slightly but then showed substantial growth beginning in 2020. This growth accelerated through 2021 and into 2022, with revenues peaking above $450 million in the first quarter of 2023. The pattern suggests cyclical fluctuations within each year, yet the overarching trajectory is positive, indicating expanding sales or service volume over the longer term.

Accounts Receivable

Accounts receivable values exhibit irregular movements, reflecting varying credit terms or collection efficiency. Initial figures around $3.8 million decreased until the third quarter of 2019 but spiked sharply to over $9 million by the end of 2019. Following this, there were further spikes and troughs, with peaks surpassing $22 million by late 2022 and early 2023. The increase in accounts receivable over time correlates with rising revenues but also indicates growing outstanding collections, which might suggest extended payment periods or increased credit sales.

Receivables Turnover Ratio

The receivables turnover ratio shows considerable volatility and a general declining trend from early 2019 through 2020, indicating slower collection of receivables relative to sales. The ratio dropped from highs above 200 in early 2019 to below 100 by mid-2020. Although there are intermittent recoveries, the ratio remained lower than initial figures until late 2021, with values moving between approximately 44 and 111. In the more recent quarters, the ratio increased again, approaching around 105 in the latest period. This renewed increase suggests improvement in collecting receivables more rapidly, enhancing liquidity.

Overall Trends and Insights

The combination of increasing revenues and rising accounts receivable highlights growth in business activities, but also potential challenges in cash flow management due to increased outstanding receivables. The declining yet fluctuating receivables turnover ratio over much of the data range points to variability in collection efficiency, with recent improvements. Close monitoring of credit policies and collection processes may be warranted to ensure that the growth in sales translates effectively into cash inflows.

Cost of Revenues

The cost of revenues has shown a steady upward trend throughout the analyzed period. Starting from approximately $29.3 million in the first quarter of 2019, it experienced moderate fluctuations in early periods but consistently increased from the end of 2019 onward. By the third quarter of 2023, the cost of revenues nearly doubled, reaching around $68.9 million. This steady growth indicates increasing expenses directly associated with generating revenue, which may correlate with expanding business operations or higher sales volumes.

Accounts Payable

Accounts payable figures exhibit significant volatility across the periods. Initially, the values ranged roughly between $3.6 million and $5.6 million until mid-2020. Thereafter, notable spikes appear, including peaks at $12.1 million in the first quarter of 2021 and $16.1 million by the end of 2022. These fluctuations indicate varying short-term obligations to suppliers or creditors, potentially reflecting changes in purchasing activities, supplier terms, or cash management strategies. Despite these peaks, there is no clear upward or downward long-term trend.

Payables Turnover Ratio

The payables turnover ratio shows considerable variability, lacking a consistent linear trend. Initially high at approximately 23.6 in early 2019, the ratio declines through 2020, reaching single-digit values around 10.7 in early 2021. Subsequently, the ratio rebounds sharply in late 2021 and continues to increase, peaking above 37 in the third quarter of 2023. This oscillation suggests fluctuating efficiency in managing payables, with periods of slower payment cycles followed by faster settlements. The sharp increase toward the end of the period implies improved turnover, meaning the company is paying its suppliers more rapidly relative to its accounts payable balance.

The financial data reveals several notable trends regarding working capital, revenues, and working capital turnover over the observed periods.

Working Capital

Working capital demonstrates a consistent upward trajectory from March 31, 2019, through June 30, 2023, albeit with occasional fluctuations. Starting at approximately $65.8 million in early 2019, it grows notably to nearly $521.5 million by mid-2023. This growth indicates enhanced liquidity and potentially greater operational capability or investment in current assets relative to current liabilities. Some declines are present toward the end of 2022 and in the third quarter of 2023, but the overall trend remains strongly positive.

Revenues

Revenues exhibit a generally increasing pattern over the same period, beginning at around $200 million in the first quarter of 2019 and rising to over $450 million by the first quarter of 2023. The revenue figures show a cyclical quarterly variation, with certain dips predominantly visible in the second quarters of several years. The data indicates steady growth in top-line performance, reflecting expanding sales or service output. Occasional declines follow periods of marked increases, suggesting some seasonality or fluctuation in demand.

Working Capital Turnover

Working capital turnover shows a declining trend from 9.31 at the beginning of 2019 to lower single-digit values around 3 by 2023. This ratio measures how efficiently the company is generating revenues from its working capital. The decline suggests that while both working capital and revenues have increased, working capital has grown at a faster rate relative to revenues. This may imply a decrease in operational efficiency regarding the utilization of working capital or a strategic decision to hold higher levels of working capital to support growth or mitigate risk.

Inventory Turnover

The inventory turnover ratio exhibits considerable fluctuations over the analyzed periods. Starting at 106.02 in March 2019, it generally demonstrates an upward trajectory with intermittent declines. Notably, sharp increases are observed in the first quarters of 2022 and 2023, reaching values of 237.84 and 258.72 respectively, and further peaking in September 2023 at 311.81. This indicates an increasingly efficient inventory management or stronger sales performance relative to inventory levels over time, particularly in recent quarters.

Average Inventory Processing Period

The average inventory processing period largely remains stable within a tight range between 1 and 4 days throughout the full time span. Periods with shorter processing times, predominately 1 to 2 days, appear more frequently in 2022 and 2023, coinciding with the highest inventory turnover rates. This inverse relationship supports the observation of enhanced inventory turnover, suggesting accelerated movement through inventory possibly due to improved operational efficiency or demand cycles.

Overall Trends and Insights

The data reflect a trend towards greater inventory efficiency, evidenced by rising turnover ratios and shorter processing periods in recent quarters. The fluctuations in turnover ratio alongside relatively consistent processing times suggest dynamic adjustments in inventory control or sales patterns, with recent trends indicating more rapid inventory cycles. Such patterns may imply advancements in supply chain management, increased market demand, or optimized stock levels, contributing to enhanced operational performance.

Receivables Turnover

The receivables turnover ratio exhibits significant variation across the observed periods. Initially, from early 2019 to late 2019, the ratio experienced fluctuations, peaking at 266.23 in September 2019 and then declining sharply to 79.34 by December 2019. During 2020, the turnover ratio remained relatively volatile, showing a downward trend mid-year before increasing near year-end. In 2021, the ratio started low at 44.02 in the first quarter and showed a general upward trajectory, reaching 111.22 by December. Starting from 2022, the turnover ratio oscillated but did not return to previous peak levels, fluctuating mostly between 60 and 90, with a moderate increase noted again in the first three quarters of 2023, achieving values above 80 and reaching 104.82 in September 2023.

Average Receivable Collection Period

The average receivable collection period, expressed in days, showed an inverse pattern relative to the turnover ratio, as expected. Early in 2019, collection periods were very short, ranging from 1 to 2 days. Late 2019 showed increased collection days, peaking at 5 days in December. Throughout 2020, the collection period fluctuated between 4 and 6 days, showing some instability. In 2021, the number of days increased notably to 8 days in the first two quarters before declining steadily to 3 days in the final quarter, indicating improved efficiency in receivables collection. In 2022 and early 2023, the average collection period stabilized around 4 to 6 days, with a slight downward trend toward 3 days in the most recent quarter, suggesting consistent and efficient collection practices.

Summary of Trends

The data reflects periods of variability in both receivables turnover and collection days, with an overall trend toward improved receivables management over time. Peaks in turnover are generally matched by shorter collection periods, indicating that when the company collects receivables faster, turnover ratios increase appropriately. The volatility observed around 2019 and 2020 may suggest external or operational factors affecting credit and collection cycles. The steady improvements in 2021 and stabilization in 2022 and 2023 indicate strengthening processes in managing receivables, ultimately contributing to better liquidity and operational efficiency.

Average Inventory Processing Period

The average inventory processing period fluctuated modestly over the observed quarters, ranging from a low of 1 day to a high of 4 days. Initially, this metric was relatively stable between 2 and 4 days through 2019 and 2020, with some minor variation. From early 2021 onward, the period generally shortened, moving consistently closer to 1 day by 2023. This trend suggests an improvement in inventory turnover efficiency over time.

Average Receivable Collection Period

This metric exhibited greater variability with a range between 1 and 8 days. The collection period increased notably in late 2019, peaking at 8 days during the first two quarters of 2021. Subsequent quarters showed a gradual decline, with values tending towards 3 to 4 days throughout 2022 and into 2023. The elevated periods in 2020 and early 2021 indicate slower receivable collections during that timeframe, while the later decrease signals improved efficiency in collecting receivables.

Operating Cycle

The operating cycle mirrored the combined behavior of the inventory processing and receivable collection periods, spanning from 3 to 11 days. A rising trend was apparent through 2019 and into early 2021, with the operating cycle reaching its peak in the first half of 2021. Afterward, there was a consistent reduction, reaching a low of 4 to 5 days by the end of the dataset in 2023. This pattern points to a prolonged operating cycle during the pandemic period, followed by a pullback to more efficient operating durations post-2021.

Payables Turnover Ratio

The payables turnover ratio indicates how many times the company pays off its accounts payable during a period. This ratio shows noticeable fluctuation throughout the reported quarters. Initially, the ratio was relatively high around 23.64 to 27.83 in early 2019, reflecting efficient payment cycles. However, in late 2019 and early 2020, the ratio decreased, reaching a low of 12.92 in the third quarter of 2020, suggesting slower payment activity.

From that low point, the ratio increased again in subsequent quarters, peaking at 28.05 by the end of 2021, indicating a return to faster payment rhythms. Afterward, the ratio experienced further variability but generally trended upward, reaching its highest level of 37.84 in the third quarter of 2023. This increasing trend in recent quarters suggests a strengthening in the company's ability or strategy to settle payables more quickly.

Average Payables Payment Period

This metric, reflecting the average number of days the company takes to pay its suppliers, inversely correlates with the payables turnover ratio. At the beginning of the period, payment cycles averaged between 13 to 17 days. There was a noticeable increase to 28 days in the third quarter of 2020, corresponding with the drop in the payables turnover ratio, indicating a slowdown in payment timeliness during that period.

Following this lag, the payment period decreased sharply by the end of 2021 to roughly 13 days, consistent with the improving payables turnover ratio, demonstrating enhanced payment efficiency. In 2023, the period shortened further, reaching 10 days in the third quarter, reinforcing the pattern of accelerated payment practices.

Overall Insights

The data reveal that the company experienced periods of slower payables turnover and extended payment cycles around 2020, possibly reflecting operational challenges or strategic adjustments during that time. However, from late 2021 onward, there has been a consistent improvement in payables management, exemplified by increasing turnover ratios and decreasing payment periods. This trend points to a more disciplined or possibly improved liquidity position, enabling the company to settle obligations faster than in previous years.

Average Inventory Processing Period

The average inventory processing period has remained relatively stable over the observed quarters, fluctuating mostly between 1 and 4 days. Notably, there is a subtle decline from around 3-4 days in early periods to consistently 1 day in the latest three quarters, indicating a potential increase in inventory turnover efficiency toward the end of the period.

Average Receivable Collection Period

The average receivable collection period exhibits variability across the quarters. Starting from a low of 1-2 days in early 2019, it increased significantly, peaking around 8 days during 2021. After this peak, the period begins to decline again, reaching 3-4 days in the most recent quarters. This pattern suggests fluctuating effectiveness in receivables management, with recent improvement toward faster collections.

Average Payables Payment Period

The average payables payment period fluctuates significantly throughout the timeline. It peaked at 34 days in early 2021, representing a notable extension of payment terms or delayed payments. Since then, there has been a downward trend, dropping to 10 days in the latest quarter. This trend may indicate a shift toward quicker payment of obligations or renegotiation of supplier terms.

Cash Conversion Cycle (CCC)

The cash conversion cycle remains negative throughout the observed period, which is generally a positive indicator reflecting that the company collects cash from sales faster than it pays its suppliers. The CCC ranges from approximately -23 days (best figure) to -4 days (least favorable), with the most recent quarters showing a gradual increase from -19 to -6 days. This indicates a slight elongation in the cash conversion cycle, possibly due to changes in receivables or payables management, but the cycle remains strongly negative overall, supporting efficient working capital management.