pycr-20230930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

————————

Form 10-Q

(Mark One)


x			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2023


o			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______ to _______

Commission file number 001-40640

PAYCOR HCM, INC.

(Exact name of registrant as specified in its charter)


Delaware									83-1813909
(State or other jurisdiction of incorporation or organization)									(I.R.S. Employer Identification No.)
4811 Montgomery Road Cincinnati, OH									45212
(Address of Principal Executive Offices)									(Zip Code)

(800) 381-0053

Registrant's telephone number, including area code

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.001 per share	PYCR	The NASDAQ Stock Market LLC (Nasdaq Global Select Market)

Securities registered pursuant to Section 12(g) of the Act: None

————————

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	x	Accelerated filer	o
Non-accelerated filer	o	Smaller reporting company	o
		Emerging growth company	o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x

As of October 31, 2023, the number of shares of the Registrant’s Common Stock outstanding was 177,588,921 shares.

Table of Contents


Part I - FINANCIAL INFORMATION
Item 1. Financial Statements			5
Unaudited Condensed Consolidated Balance Sheets as of September 30 , 2023 and June 30, 20 23			5
Unaudited Condensed Consolidated Statements of Operations for the Three Months Ended September 30 , 2023 and 20 2 2			6
Unaudited Condensed Consolidated Statements of Comprehensive Loss for the Three Months Ended September 30 , 2023 and 2022			7
Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the Three Months Ended September , 2023 and 2022			8
Unaudited Condensed Consolidated Statements of Cash Flows for the Three Months Ended September 30 , 2023 and 2022			9
Notes to the Unaudited Condensed Consolidated Statements			10
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			21
Item 3. Quantitative and Qualitative Disclosures About Market Risk			35
Item 4. Controls and Procedures			36
Part II - OTHER INFORMATION
Item 1. Legal Proceedings			37
Item 1A. Risk Factors			37
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			37
Item 3. Defaults Upon Senior Securities			37
Item 4. Mine Safety Disclosures			37
Item 5. Other Information			37
Item 6. Exhibits			38
Signatures			39

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Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q, including the sections entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors,” contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact, including statements regarding our future results of operations and financial position, our business strategy and plans, our objectives for future operations, and any statements of a general economic or industry specific nature, are forward-looking statements. You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. Words such as “anticipate,” “estimate,” “expect,” “project,” “plan,” “intend,” “believe,” “may,” “will,” “should,” “can have,” “likely,” “outlook,” “potential,” “targets,” “contemplates,” or the negative or plural of these words and similar expressions are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe, based on information currently available to our management, may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives, and financial needs. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, related to our operations, financial results, financial condition, business, prospects, growth strategy, and liquidity. Accordingly, there are, or will be, important factors that could cause our actual results to differ materially from those indicated in these statements. We believe that these factors include, but are not limited to:

•Our ability to manage our growth effectively.

•The resulting effects of unauthorized access to our customers’ or their employees’ personal data as a result of a breach of our or our vendors’ securities measures, including by way of computer viruses, worms, phishing and ransomware attacks, malicious software programs, and other data security threats.

•The expansion and retention of our direct sales force with qualified and productive persons and the related effects on the growth of our business.

•The impact on customer expansion and retention if implementation, user experience, customer service, or performance relating to our solutions is not satisfactory.

•The timing of payments made to employees and taxing authorities relative to the timing of when a customer’s electronic funds transfers are settled to our account.

•Future acquisitions of other companies’ businesses, technologies, or customer portfolios.

•The continued service of our key executives.

•Our ability to innovate and deliver high-quality, technologically advanced products and services.

•Our ability to attract and retain qualified personnel, including software developers and skilled IT, sales, marketing, and operation personnel.

•The proper operation of our software.

•Our relationships with third parties.

•Damage, failure, or disruption of our Software-as-a-Service (“SaaS”) delivery model, data centers, or our third-party providers’ services.

•Our ability to protect our intellectual and proprietary rights.

•The use of open source software in our applications.

•The growth of the market for cloud-based human capital management and payroll software among small and medium- sized businesses (“SMBs”).

•The competitiveness of our market generally.

•The ongoing effects of inflation, supply chain disruptions, labor shortages and other adverse macroeconomic conditions in the markets in which we and our customers operate.

•The impact of an economic downturn or recession in the United States (“U.S.”) or global economy.

•Our customers’ dependence on our solutions to comply with applicable laws.

•Our ability to comply with anti-corruption, anti-bribery and similar laws.

Table of Contents

•Changes in laws, regulations, or requirements applicable to our software and services.

•The impact of privacy, data protection, tax and other laws and regulations.

•Our ability to maintain effective internal controls over financial reporting.

•The other risk factors set forth under Item 1A of Part I of our Annual Report on Form 10-K, filed with the SEC on August 28, 2023.

Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the future events and trends discussed in this report may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.

You should not rely upon forward-looking statements as predictions of future events. The events and circumstances reflected in the forward-looking statements may not be achieved or occur. Although we believe that the expectations and assumptions reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. We undertake no obligation to publicly update any forward-looking statement after the date of this report, whether as a result of new information, future developments or otherwise, or to conform these statements to actual results or revised expectations, except as may be required by law.

Table of Contents

Part I - FINANCIAL INFORMATION

Item 1. Financial Statements

Paycor HCM, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(in thousands, except share amounts)


	September 30, 2023		June 30, 2023
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	54,277	$	95,233
Accounts receivable, net	34,736		30,820
Deferred contract costs	58,963		54,448
Prepaid expenses	13,196		10,448
Other current assets	6,630		2,581
Current assets before funds held for clients	167,802		193,530
Funds held for clients	1,033,180		1,049,156
Total current assets	1,200,982		1,242,686
Property and equipment, net	37,722		34,573
Operating lease right-of-use assets	15,921		16,834
Goodwill	764,619		767,738
Intangible assets, net	234,773		260,472
Capitalized software, net	58,764		53,983
Long-term deferred contract costs	170,862		162,657
Other long-term assets	2,987		2,232
Total assets	$	2,486,630	$	2,541,175
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	20,340	$	28,350
Accrued expenses and other current liabilities	21,032		24,119
Accrued payroll and payroll related expenses	23,575		43,858
Deferred revenue	13,096		13,083
Current liabilities before client fund obligations	78,043		109,410
Client fund obligations	1,038,327		1,053,926
Total current liabilities	1,116,370		1,163,336
Deferred income taxes	14,374		18,047
Long-term operating leases	15,203		16,061
Other long-term liabilities	71,268		70,047

Total liabilities	1,217,215		1,267,491
Commitments and contingencies (Note 13)

Stockholders' equity:
Common stock $0.001 par value per share, 500,000,000 shares authorized, 177,104,017 shares outstanding at September 30, 2023 and 176,535,236 shares outstanding at June 30, 2023	177		177
Treasury stock, at cost, 10,620,260 shares at September 30, 2023 and June 30, 2023	(245,074)		(245,074)
Preferred stock, $0.001 par value, 50,000,000 shares authorized, — shares outstanding at September 30, 2023 and June 30, 2023	—		—

Additional paid-in capital	2,027,863		2,011,194
Accumulated deficit	(510,091)		(489,495)
Accumulated other comprehensive loss	(3,460)		(3,118)
Total stockholders' equity	1,269,415		1,273,684
Total liabilities and stockholders' equity	$	2,486,630	$	2,541,175

The accompanying Notes to the Unaudited Condensed Consolidated Financial Statements are an integral part of these statements.

Paycor HCM, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Operations

(in thousands, except share amounts)



	Three Months Ended September 30,
		2023		2022
Revenues:
Recurring and other revenue		$	132,708	$	114,169
Interest income on funds held for clients		10,880		4,134
Total revenues		143,588		118,303
Cost of revenues		51,378		43,185
Gross profit		92,210		75,118
Operating expenses:
Sales and marketing		52,778		48,195
General and administrative		48,749		47,911
Research and development		14,055		12,402
Total operating expenses		115,582		108,508
Loss from operations		(23,372)		(33,390)
Other (expense) income:
Interest expense		(1,244)		(1,087)
Other		931		445
Loss before benefit for income taxes		(23,685)		(34,032)
Income tax benefit		(3,089)		(4,980)
Net loss		$	(20,596)	$	(29,052)


Basic and diluted net loss per share		$	(0.12)	$	(0.17)
Weighted average common shares outstanding:
Basic and diluted		176,953,395		175,512,577

The accompanying Notes to the Unaudited Condensed Consolidated Financial Statements are an integral part of these statements.

Paycor HCM, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Comprehensive Loss

(in thousands)


	Three Months Ended
	September 30,
		2023		2022
Net loss		$	(20,596)	$	(29,052)
Other comprehensive loss, net of tax:
Unrealized loss on foreign currency translation		(168)		(423)
Unrealized loss on available-for-sale securities, net of tax		(174)		(1,700)
Other comprehensive loss, net of tax		(342)		(2,123)
Comprehensive loss		$	(20,938)	$	(31,175)

The accompanying Notes to the Unaudited Condensed Consolidated Financial Statements are an integral part of these statements.

Paycor HCM, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Stockholders’ Equity

(in thousands, except share amounts)


	Three Months Ended September 30, 2022
	Preferred Stock			Common Stock					Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Total Stockholders' Equity
	Shares	Amount		Shares	Amount		Treasury Stock

Balance, June 30, 2022	—	$	—	174,909,539	$	175	$	(245,074)	$	1,926,800	$	(395,389)	$	(1,781)	$	1,284,731
Net loss	—	—		—	—		—		—		(29,052)		—		(29,052)
Stock-based compensation expense	—	—		—	—		—		16,951		—		—		16,951

Net settlement for taxes	—	—		—	—		—		(1,293)		—		—		(1,293)
Issuance of common stock under employee stock plans	—	—		733,570	1		—		4,644		—		—		4,645
Other comprehensive loss	—	—		—	—		—		—		—		(2,123)		(2,123)

Balance, September 30, 2022	—	$	—	175,643,109	$	176	$	(245,074)	$	1,947,102	$	(424,441)	$	(3,904)	$	1,273,859


	Three Months Ended September 30, 2023
	Preferred Stock			Common Stock					Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Total Stockholders' Equity
	Shares	Amount		Shares	Amount		Treasury Stock

Balance, June 30, 2023	—	$	—	176,535,236	$	177	$	(245,074)	$	2,011,194	$	(489,495)	$	(3,118)	$	1,273,684
Net loss	—	—		—	—		—		—		(20,596)		—		(20,596)
Stock-based compensation expense	—	—		—	—		—		12,915		—		—		12,915

Net settlement for taxes	—	—		—	—		—		(418)		—		—		(418)
Issuance of common stock under employee stock plans	—	—		568,781	—		—		4,172		—		—		4,172
Other comprehensive loss	—	—		—	—		—		—		—		(342)		(342)

Balance, September 30, 2023	—	$	—	177,104,017	$	177	$	(245,074)	$	2,027,863	$	(510,091)	$	(3,460)	$	1,269,415

The accompanying Notes to the Unaudited Condensed Consolidated Financial Statements are an integral part of these statements.

Paycor HCM, Inc. and Subsidiaries

Unaudited Condensed Consolidated Statements of Cash Flows

(in thousands)


	Three Months Ended
	September 30,
	2023		2022
Cash flows from operating activities:
Net loss	$	(20,596)	$	(29,052)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation	1,511		1,200
Amortization of intangible assets and software	34,183		29,676
Amortization of deferred contract costs	14,366		10,028
Stock-based compensation expense	12,915		16,951

Deferred tax benefit	(3,098)		(5,000)
Bad debt expense	1,291		562
Loss on sale of investments	61		47

Loss on foreign currency exchange	184		424
(Gain) loss on lease exit	(144)		509
Naming rights accretion expense	1,030		893


Other	23		23
Changes in assets and liabilities, net of effects from acquisitions:
Accounts receivable	(5,228)		(2,450)
Prepaid expenses and other assets	(6,393)		(1,841)

Accounts payable	(7,877)		1,358
Accrued liabilities and other	(21,314)		(25,220)
Deferred revenue	43		(439)

Deferred contract costs	(27,086)		(21,770)
Net cash used in operating activities	(26,129)		(24,101)
Cash flows from investing activities:
Purchases of client funds available-for-sale securities	(22,542)		(247,927)
Proceeds from sale and maturities of client funds available-for-sale securities	23,652		143,107
Purchase of property and equipment	(1,435)		(331)

Acquisition of intangible assets	(12)		(4,713)



Internally developed software costs	(13,254)		(9,096)
Net cash used in investing activities	(13,591)		(118,960)
Cash flows from financing activities:
Net change in cash and cash equivalents held to satisfy client funds obligations	(16,270)		(775,923)



Payment of capital expenditure financing	(3,689)		—





Repayments of debt and finance lease obligations	(266)		(70)




Withholding taxes paid related to net share settlements	(418)		(1,293)
Proceeds from exercise of stock options	—		345
Proceeds from employee stock purchase plan	4,172		4,300


Net cash used in financing activities	(16,471)		(772,641)
Impact of foreign exchange on cash and cash equivalents	1		(14)
Net change in cash, cash equivalents, restricted cash and short-term investments, and funds held for clients	(56,190)		(915,716)
Cash, cash equivalents, restricted cash and short-term investments, and funds held for clients, beginning of period	879,046		1,682,923
Cash, cash equivalents, restricted cash and short-term investments, and funds held for clients, end of period	$	822,856	$	767,207
Supplemental disclosure of non-cash investing, financing and other cash flow information:
Capital expenditures in accounts payable	$	11	$	9

Cash paid for interest	$	145	$	—
Right-of-use assets obtained in exchange for operating lease liabilities	$	—	$	6,612
Capital lease asset obtained in exchange for capital lease liabilities	$	3,393	$	—
Reconciliation of cash, cash equivalents, restricted cash and short-term investments, and funds held for clients to the Consolidated Balance Sheets
Cash and cash equivalents	$	54,277	$	98,161

Funds held for clients	768,579		669,046
Total cash, cash equivalents, restricted cash and short-term investments, and funds held for clients	$	822,856