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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ 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 ~~and post~~ such files). Yes ☒ No ☐

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. ~~(Check one):~~

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. ☐

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

As of ~~October 25, 2017,~~July 27, 2021, there were ~~59,196,119~~60,094,394 shares of common stock, par value of $0.01 per share, outstanding, including ~~931,998~~2,177,023 shares of restricted stock.

	September 30,			December 31,
	2017			2016			June 30, 2021			December 31, 2020
Assets
Current assets:
Cash and cash equivalents	$	66,610		$	60,158		$	202,362		$	151,710
Accounts receivable		1,444			1,339			19,905			9,130
Prepaid expenses		5,705			4,475			32,284			17,854
Inventory		750			675			882			1,151
Income tax receivable		9,247			692			7,997			10,447
Deferred contract costs								67,720			60,819
Current assets before funds held for clients		83,756			67,339			331,150			251,111
Funds held for clients		792,734			858,244			2,025,372			1,613,494
Total current assets		876,490			925,583			2,356,522			1,864,605
Property and equipment, net		133,765			96,848			320,997			285,218
Deposits and other assets		1,341			1,215
Intangible assets, net								60,087			319
Goodwill		51,889			51,889			51,889			51,889
Intangible assets, net		1,011			1,871
Deferred income tax assets, net		5,440			1,207
Long-term deferred contract costs								410,700			371,357
Other assets								32,892			34,524
Total assets	$	1,069,936		$	1,078,613		$	3,233,087		$	2,607,912
Liabilities and Stockholders' Equity
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	2,505		$	3,737		$	9,220		$	6,787
Accrued commissions and bonuses		6,782			8,003			9,918			13,703
Accrued payroll and vacation		9,096			4,769			28,640			24,529
Deferred revenue		6,526			5,230			14,946			13,567
Current portion of long-term debt		1,152			1,113			1,775			1,775
Accrued expenses and other current liabilities		18,817			17,798			55,337			44,175
Current liabilities before client funds obligation		44,878			40,650			119,836			104,536
Client funds obligation		792,734			858,244			2,025,372			1,613,494
Total current liabilities		837,612			898,894			2,145,208			1,718,030
Deferred income tax liabilities, net								119,083			112,598
Long-term deferred revenue		41,841			34,481			77,512			73,259
Net long-term debt, less current portion		33,218			28,711			28,250			29,119
Other long-term liabilities								70,778			19,263
Total long-term liabilities		75,059			63,192			295,623			234,239
Total liabilities								2,440,831			1,952,269
Commitments and contingencies
Stockholders' equity:
Common stock, $0.01 par value (100,000,000 shares authorized, 59,953,932 and 58,453,283 shares issued at September 30, 2017 and December 31, 2016, respectively; 58,131,606 and 57,331,022 shares outstanding at September 30, 2017 and December 31, 2016, respectively)		599			585
Stockholders’ equity:
Common stock, $0.01 par value (100,000 shares authorized, 62,135 and 61,861 shares issued at June 30, 2021 and December 31, 2020, respectively; 57,918 and 57,739 shares outstanding at June 30, 2021 and December 31, 2020, respectively)								621			618
Additional paid-in capital		129,770			95,452			409,979			357,908
Retained earnings		124,350			70,448			836,513			719,619
Treasury stock, at cost (1,822,326 and 1,122,261 shares at September 30, 2017 and December 31, 2016, respectively)		(97,454	)		(49,958	)
Total stockholders' equity		157,265			116,527
Total liabilities and stockholders' equity	$	1,069,936		$	1,078,613
Treasury stock, at cost (4,217 and 4,122 shares at June 30, 2021 and December 31, 2020, respectively)								(454,857	)		(422,502	)
Total stockholders’ equity								792,256			655,643
Total liabilities and stockholders’ equity							$	3,233,087		$	2,607,912

	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
		2017			2016			2017			2016			2021			2020			2021		2020
Revenues
Recurring	$	99,498		$	75,857		$	313,763		$	237,253		$	237,585		$	177,950		$	505,359	$	416,445
Implementation and other		1,789			1,468			5,259			4,078			4,561			3,637			8,985		7,510
Total revenues		101,287			77,325			319,022			241,331			242,146			181,587			514,344		423,955
Cost of revenues
Operating expenses		15,324			13,227			46,019			34,491			28,773			23,257			57,846		47,373
Depreciation and amortization		2,502			1,521			6,829			4,093			7,637			6,301			14,837		12,231
Total cost of revenues		17,826			14,748			52,848			38,584			36,410			29,558			72,683		59,604
Administrative expenses
Sales and marketing		35,542			29,274			106,460			82,702			67,979			56,064			130,740		111,082
Research and development		8,112			6,232			23,004			14,294			28,224			21,778			52,935		43,399
General and administrative		25,967			24,457			70,450			54,883			54,063			40,837			100,254		80,971
Depreciation and amortization		2,403			2,032			7,069			5,578			8,380			6,774			16,096		13,059
Total administrative expenses		72,024			61,995			206,983			157,457			158,646			125,453			300,025		248,511
Total operating expenses		89,850			76,743			259,831			196,041			195,056			155,011			372,708		308,115
Operating income		11,437			582			59,191			45,290			47,090			26,576			141,636		115,840
Interest expense		(220	)		(252	)		(758	)		(733	)		—			(3	)		—		(19	)
Other income (expense), net		118			(213	)		362			(63	)		146			162			775		(768	)
Income before income taxes		11,335			117			58,795			44,494			47,236			26,735			142,411		115,053
Provision for income taxes		(2,732	)		(6,081	)		4,893			9,287
Provision (benefit) for income taxes														(5,042	)		(1,854	)		25,517		23,449
Net income	$	14,067		$	6,198		$	53,902		$	35,207		$	52,278		$	28,589		$	116,894	$	91,604
Earnings per share, basic	$	0.24		$	0.11		$	0.93		$	0.61		$	0.90		$	0.50		$	2.02	$	1.59
Earnings per share, diluted	$	0.24		$	0.10		$	0.91		$	0.59		$	0.90		$	0.49		$	2.01	$	1.57
Weighted average shares outstanding:
Basic		58,003,222			57,819,734			57,751,204			57,515,846			57,853			57,568			57,797		57,611
Diluted		58,873,502			58,907,281			58,839,771			58,793,479			58,092			58,237			58,135		58,363

	Common Stock				Additional			Retained		Treasury Stock					Total
	Shares		Amount		Paid-in Capital			Earnings		Shares		Amount			Stockholders’ Equity
Balances at December 31, 2019		61,350	$	613	$	257,501		$	576,166		3,689	$	(307,652	)	$	526,628
Vesting of restricted stock		2		1		(1	)		—		—		—			—
Stock-based compensation		—		—		18,313			—		—		—			18,313
Repurchases of common stock		—		—		—			—		41		(8,168	)		(8,168	)
Net income		—		—		—			63,015		—		—			63,015
Balances at March 31, 2020		61,352	$	614	$	275,813		$	639,181		3,730	$	(315,820	)	$	599,788
Vesting of restricted stock		261		2		(2	)		—		—		—			—
Stock-based compensation		—		—		24,597			—		—		—			24,597
Repurchases of common stock		—		—		—			—		295		(67,121	)		(67,121	)
Net income		—		—		—			28,589		—		—			28,589
Balances at June 30, 2020		61,613	$	616	$	300,408		$	667,770		4,025	$	(382,941	)	$	585,853

	Common Stock				Additional			Retained		Treasury Stock					Total
	Shares		Amount		Paid-in Capital			Earnings		Shares		Amount			Stockholders’ Equity
Balances at December 31, 2020		61,861	$	618	$	357,908		$	719,619		4,122	$	(422,502	)	$	655,643
Vesting of restricted stock		3		—		—			—		—		—			—
Stock-based compensation		—		—		25,594			—		—		—			25,594
Repurchases of common stock		—		—		—			—		1		(377	)		(377	)
Net income		—		—		—			64,616		—		—			64,616
Balances at March 31, 2021		61,864	$	618	$	383,502		$	784,235		4,123	$	(422,879	)	$	745,476
Vesting of restricted stock		271		3		(3	)		—		—		—			—
Stock-based compensation		—		—		26,480			—		—		—			26,480
Repurchases of common stock		—		—		—			—		94		(31,978	)		(31,978	)
Net income		—		—		—			52,278		—		—			52,278
Balances at June 30, 2021		62,135	$	621	$	409,979		$	836,513		4,217	$	(454,857	)	$	792,256

	Six Months Ended June 30,
	2021			2020
Cash flows from operating activities
Net income	$	116,894		$	91,604
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		30,933			25,290
Accretion of discount on available-for-sale securities		(183	)		(974	)
Non-cash marketing expense		157			—
Loss on disposition of property and equipment		132			—
Amortization of debt issuance costs		18			19
Stock-based compensation expense		47,373			37,029
Cash paid for derivative settlement		(418	)		(233	)
(Gain)/loss on derivative		(287	)		1,939
Deferred income taxes, net		6,485			7,319
Changes in operating assets and liabilities:
Accounts receivable		(10,775	)		3
Prepaid expenses		(14,430	)		(11,426	)
Inventory		80			(433	)
Other assets		1,631			(1,113	)
Deferred contract costs		(44,893	)		(40,488	)
Accounts payable		2,267			(1,017	)
Income taxes, net		2,450			(304	)
Accrued commissions and bonuses		(3,785	)		(5,804	)
Accrued payroll and vacation		4,111			4,079
Deferred revenue		5,632			4,643
Accrued expenses and other current liabilities		3,051			(2,621	)
Net cash provided by operating activities		146,443			107,512
Cash flows from investing activities
Purchase of short-term investments from funds held for clients		(142,051	)		(207,878	)
Proceeds from maturities of short-term investments from funds held for clients		155,000			70,343
Purchases of property and equipment		(62,732	)		(52,458	)
Net cash used in investing activities		(49,783	)		(189,993	)
Cash flows from financing activities
Repurchases of common stock		—			(52,040	)
Withholding taxes paid related to net share settlements		(32,355	)		(23,249	)
Payments on long-term debt		(888	)		(888	)
Net change in client funds obligation		411,878			(629,243	)
Net cash provided by (used in) financing activities		378,635			(705,420	)
Increase (decrease) in cash, cash equivalents, restricted cash and restricted cash equivalents		475,295			(787,901	)
Cash, cash equivalents, restricted cash and restricted cash equivalents
Cash, cash equivalents, restricted cash and restricted cash equivalents, beginning of period		1,585,275			1,641,854
Cash, cash equivalents, restricted cash and restricted cash equivalents, end of period	$	2,060,570		$	853,953

Nine Months Ended September 30,

2017

2016

Cash flows from operating activities

Net income

$
53,902

$
35,207

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

13,898

9,671

Amortization of debt issuance costs

92

96

Net loss on disposition of property and equipment

21

230

Stock-based compensation expense

31,757

18,742

Deferred income taxes, net

(4,233
)

(1,500
)
Changes in operating assets and liabilities:

Accounts receivable

(105
)

875

Prepaid expenses

(1,230
)

(460
)
Inventory

(75
)

963

Deposits and other assets

(126
)

276

Accounts payable

(1,463
)

(3,658
)
Income taxes, net

(8,555
)

2,427

Accrued commissions and bonuses

(1,221
)

(3,306
)
Accrued payroll and vacation

4,327

3,782

Deferred revenue

8,656

7,849

Accrued expenses and other current liabilities

(3,225
)

3,241

Net cash provided by operating activities

92,420

74,435

Cash flows from investing activities

Net change in funds held for clients

65,510

103,662

Purchases of property and equipment

(42,926
)

(32,130
)
Net cash provided by investing activities

22,584

71,532

Cash flows from financing activities

Proceeds from issuance of long-term debt

5,440

5,000

Repurchases of common stock

(19,391
)

(8,379
)
Withholding taxes paid related to net share settlement

(28,105
)

(14,396
)
Principal payments on long-term debt

(843
)

(702
)
Net change in client funds obligation

(65,510
)

(103,662
)
Payment of debt issuance costs

(143
)

(46
)
Net cash used in financing activities

(108,552
)

(122,185
)
Increase in cash and cash equivalents

6,452

23,782

Cash and cash equivalents

Beginning of period

60,158

50,714

End of period

$
66,610

$
74,496

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

Paycom Software, Inc. (“Software”) and its ~~wholly owned~~wholly-owned subsidiaries (collectively, the “Company”) is a leading provider of a comprehensive, cloud-based human capital management (“HCM”) ~~software~~solution delivered as Software-as-a-Service. Unless we state otherwise or the context otherwise requires, the terms ~~“we”, “our”,~~“we,” “our,” “us” and the “Company” refer to Software and its consolidated subsidiaries.

We provide functionality and data analytics that businesses need to manage the complete employment lifecycle, from recruitment to retirement. Our solution requires virtually no customization and is based on a core system of record maintained in a single database for all HCM functions, including talent acquisition, time and labor management, payroll, talent management and human resources (“HR”) management applications.

The accompanying unaudited interim consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial statements that permit reduced disclosure for interim periods. In the opinion of management, the accompanying unaudited consolidated financial statements include all adjustments necessary for the fair presentation of our consolidated balance sheets as of September 30, 2017 and December 31, 2016, our consolidated statements of income for the three and nine months ended September 30, 2017 and 2016 and our consolidated statements of cash flows for the nine months ended September 30, 2017 and 2016. Such adjustments are of a normal recurring nature. The information in this Quarterly Report on Form 10-Q should be read in conjunction with our Annual Report on Form 10-K that was filed with the SEC on February 21, 2017. The results of operations for the three and nine months ended September 30, 2017 are not necessarily indicative of the results expected for the full year.

Our significant accounting policies are discussed in “Note 2. Summary of Significant Accounting Policies” in the notes to our audited consolidated financial statements ~~for the year ended December 31, 2016,~~ included in the Annual Report on Form 10-K ~~that was~~for the year ended December 31, 2020 (the “Form 10-K”) filed with the ~~SEC~~Securities and Exchange Commission (“SEC”) on February ~~21, 2017.~~18, 2021.

The accompanying unaudited interim consolidated financial statements and notes have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) and applicable rules and regulations of the SEC regarding interim financial statements that permit reduced disclosure for interim periods. In the opinion of management, the unaudited consolidated financial statements reflect all adjustments of a normal recurring nature that are necessary for a fair presentation of the results for the interim periods presented. 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 six months ended June 30, 2021 are not necessarily indicative of the results expected for the full year.

In January ~~2017, the Financial Accounting Standards Board (“FASB”) issued~~2021, we adopted Accounting Standards Update (“ASU”) No. ~~2017-04, “Simplifying~~2019-12, “Income Taxes (Topic 740) Simplifying the ~~Test~~Accounting for ~~Goodwill Impairment (Topic 350)”~~Income Taxes” (“ASU 2019-12”) utilizing the prospective transition method. The amendments in ASU 2019-12 eliminate certain exceptions related to ~~simplify~~ the ~~subsequent measurement~~approach for intraperiod tax allocation, the methodology for calculating income tax in an interim period and the recognition of ~~goodwill. Under this new guidance, Step 2~~deferred tax liabilities for outside basis differences. ASU 2019-12 also clarifies and simplifies other aspects of the ~~goodwill impairment test is eliminated, including elimination~~accounting for income taxes. 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 ~~requirement to perform Step 2~~FASB Emerging Issues Task Force)” (“ASU 2018-15”) utilizing the prospective transition method. ASU 2018-15 aligns the requirements for ~~any reporting unit with~~capitalizing implementation costs incurred in a ~~zero or negative carrying amount~~hosting arrangement that ~~failed~~is a ~~qualitative assessment. This standard should be applied on a prospective basis~~service contract with the ~~nature~~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 and reason for the change in accounting principle disclosed upon transition. The standard is effective in fiscal years beginning after December 15, 2019, with early adoption permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We adopted 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”). ASU No. 2018-13 modifies the ~~annual goodwill impairment test we performed as~~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 ~~June 30, 2017.~~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.

The preparation of consolidated financial statements in conformity with U.S. 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, ~~and intangible assets,~~ the life of our ~~customer~~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. ~~As such, actual~~Actual results could materially differ from these estimates.

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

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. ~~Because~~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. 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.

An award issued under the Paycom Software, Inc. Employee Stock Purchase Plan (the “ESPP”) is classified as a share-based liability and ~~recorded~~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.

As part of our payroll and tax filing application, we (i) collect client funds to satisfy their respective federal, state and local employment tax obligations, (ii) remit such funds to the appropriate taxing authorities and accounts designated by our clients, and (iii) manage client tax filings and any related correspondence with taxing authorities. ~~During the interval between receipt and disbursement, we invest and earn interest on the amounts that we collect~~Amounts collected by us from clients for their federal, state and local employment ~~taxes.~~ taxes are invested by us, and we earn interest on these funds during the interval between receipt and disbursement.

~~As of September 30, 2017 and December 31, 2016, the funds held for clients were invested in money market funds, demand deposit accounts, commercial paper and certificates of deposit.~~ These investments are shown in ~~the~~our consolidated balance sheets as funds held for clients, and ~~are classified as a current asset because~~ the ~~funds are held solely to satisfy the client funds obligation.~~

~~The~~ offsetting liability for the tax filings is shown as client funds obligation. The liability is recorded in the accompanying consolidated balance sheets at the time we obtain the funds from clients. The client funds obligation represents liabilities that will be repaid within one year of the consolidated balance sheet date. As of ~~April 1, 2016,~~June 30, 2021 and December 31, 2020, the ~~interest income earned on~~ funds held for clients iswere invested in money market funds, demand deposit accounts, commercial paper with a maturity duration less than three months and certificates of deposit. Short-term investments in commercial paper and certificates of deposit with an original maturity duration greater than three months are classified as available-for-sale securities, and are also included within the funds held for clients line item in the consolidated balance sheets. These available-for-sale securities are recorded in ~~recurring revenues. Prior to April 1, 2016,~~ the ~~interest income earned on these funds was recorded in other income, net~~consolidated balance sheets at fair value, which approximates the amortized cost of the securities. Funds held for clients are classified as a current asset in the ~~unaudited~~ consolidated ~~statements of income.~~balance sheets because the funds are held solely to satisfy the client funds obligation.

OnIn May ~~26,~~ 2016, ~~we announced that~~ our Board of Directors ~~approved~~authorized a stock repurchase plan ~~under which we were authorized to purchase (in~~allowing for the ~~aggregate) up to $50.0 million~~repurchase of shares of our ~~issued and outstanding~~ common stock ~~par value $0.01 per share, over a 24 month period. Shares may be repurchased from time-to-time~~ in open market transactions at prevailing market prices, in privately negotiated transactions or by other means in accordance with federal securities laws, including Rule 10b5-1 ~~programs,~~programs. Since the initial authorization of the stock repurchase plan, our Board of Directors has amended and extended and authorized new stock repurchase plans from time to time. Most recently, in May 2021, our Board of Directors authorized the repurchase of up to $300.0 million of our common stock. As of June 30, 2021, there was $299.5 million available for repurchases under our stock repurchase plan. Our stock repurchase plan may be suspended or discontinued at any time. The actual timing, number and value of shares repurchased depends on a number of factors, including the market price of our common stock, general market and economic conditions, shares withheld for taxes associated with the vesting of restricted stock and other corporate considerations. The current stock repurchase plan will expire on May 13, 2023.

During the ~~three~~six months ended ~~September~~June 30, ~~2016,~~2021, we repurchased an aggregate of ~~402,626~~94,997 shares of our common stock ~~under the repurchase plan~~ at an average cost of ~~$47.90~~$340.59 per share, ~~including 302,424~~all of which were shares withheld to satisfy tax withholding obligations for certain employees upon the vesting of restricted ~~common~~ stock. During the nine months ended September 30, 2016, we repurchased an aggregate of 487,755 shares of our common stock under the repurchase plan at an average cost of $46.69 per share, including 302,424 shares withheld to satisfy tax withholding obligations for certain employees upon the vesting of restricted common stock.

On February 8, 2017, we announced that our Board of Directors amended and extended this stock repurchase plan, such that we were authorized to purchase (in the aggregate) up to an additional $50.0 million of common stock through January 2019. During the three months ended September 30, 2017, we repurchased an aggregate of 239,906 shares of our common stock under the repurchase plan at an average cost of $72.26 per share, including 179,766 shares withheld to satisfy tax withholding obligations for certain employees upon the vesting of restricted common stock. During the nine months ended September 30, 2017, we repurchased an aggregate of 700,065 shares of our common stock under the repurchase plan at an average cost of $67.85 per share, including 404,895 shares withheld to satisfy tax withholding obligations for certain employees upon the vesting of restricted common stock.

In ~~May 2014,~~March 2020, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2020-04, “Reference Rate Reform (Topic 848) Facilitation of the Effects of Reference Rate Reform on Financial Reporting” (“ASU 2020-04”). ASU 2020-04 provides temporary optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships and other transactions 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 LIBOR. If LIBOR ceases to exist, we may need to renegotiate our loan documents and we cannot predict what alternative index would be negotiated with our lenders. ASU 2020-04 is currently effective and upon adoption may be

applied prospectively to contract modifications made on or before December 31, 2022. We are currently assessing the impact that this guidance will have on our consolidated financial statements.

In January 2021, the FASB issued ASU No. ~~2014-09, “Revenue~~2021-01, “Reference Rate Reform (Topic 848) Scope” (“ASU 2021-01”), which clarifies that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivative instruments that are affected by the discounting transition. 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 ~~Contracts with Customers (Topic 606).” This authoritative guidance~~the beginning of the interim period that includes ~~a comprehensive~~March 12, 2020, or prospectively to new ~~revenue recognition model~~modifications from any date within the interim period that ~~requires revenue~~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.

Revenues are recognized ~~in a manner to depict~~when control of the ~~transfer of~~promised goods or services is transferred to ~~a customer at~~our clients in an amount that reflects the consideration ~~expected~~we expect to be ~~received~~entitled to for those goods or services. Substantially all of our revenues are comprised of revenue from contracts with clients. Sales taxes and other applicable taxes are excluded from revenues.

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.

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. Recurring revenues are recognized at the conclusion of processing of each client’s payroll period, when each respective payroll client is billed. Collectability is reasonably assured as the fees are collected through an automated clearing house as part of the client’s payroll cycle or through direct wire transfer, which minimizes the default risk.

The contract period for substantially all contracts associated with these revenues is one month due to the fact that both we and the client have the unilateral right to terminate a wholly unperformed contract without compensating the other party by providing 30 days’ notice of termination. Our payroll application is the foundation of our solution, and all of our clients are required to utilize this application in ~~exchange~~order to access our other applications. For clients who purchase multiple applications, due to the short-term nature of our contracts, we do not believe it is meaningful to separately assess and identify whether or not each application potentially represents its own, individual, performance obligation as the revenue generated from each application is recognized within the same month as the revenue from the core payroll application. Similarly, we do not believe it is meaningful to individually determine the standalone selling price for ~~those~~each application. We consider the total price charged to a client in a given period to be indicative of the standalone selling price, as the total amount charged is within a reasonable range of prices typically charged for our goods and services for comparable classes of client groups, which we periodically assess for price adjustments.

Implementation and other revenues consist of nonrefundable upfront conversion fees which are charged to new clients to offset the expense of new client set-up as well as revenues from the sale of time clocks as part of our employee time and attendance services. Although these revenues are related to our recurring revenues, they represent distinct performance obligations.

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

~~goods or services. The FASB has since issued several additional amendments~~Implementation activities primarily represent administrative activities that allow us to ~~this guidance. On July 9, 2015, the FASB approved a one-year deferral of the effective date of the new revenue recognition standard~~fulfill future performance obligations for ~~public~~our clients and non-public entities reporting under U.S. GAAP. The amended standard is effective for periods beginning after December 15, 2017 and early adoption is permitted but no earlier than for reporting periods beginning after December 31, 2016. The Company is nearing completion of the assessment phase with respectdo not represent services transferred to the ~~adoption of~~client. However, the ~~standard but has not yet fully determined the impact of the new guidance on its consolidated financial statements; however, we expect the new standard will have a material impact on the manner~~nonrefundable upfront fee charged to our clients results in which we account for certain costs to acquire new contracts (i.e., selling and commission costs) and costs to fulfill contracts (i.e., costs related to implementation services performed), which are currently expensed as they are incurred. Generally, as it relates to these types of costs, the provisions of the new standard will result in the deferral of these costs on the consolidated balance sheets and subsequently the amortizing of these costs to the consolidated statements of income over the expected life of our customer relationships, which we have determined to be an average of 10 years. Further, we are finalizing the impact of our conclusion on implementation services containing an implied performance obligation in the form of a material right to the ~~customer. We believe~~client related to the ~~impact~~client’s option to renew at the end of ~~this conclusion~~each 30-day contract period. Further, given that all other services within the contract are sold at a total price indicative of the standalone selling price, coupled with the fact that the upfront fees are consistent with upfront fees charged in similar contracts that we have with clients, the standalone selling price of the client’s option to renew the contract approximates the dollar amount of the nonrefundable upfront fee. The nonrefundable upfront fee is typically included on the client’s first invoice, and is deferred and recognized ratably over the estimated renewal period (i.e., ten-year estimated client life).

Revenues from the sale of time clocks are recognized when control is transferred to the client upon delivery of the product. 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.

The timing of revenue recognition ~~of implementation revenues will be minimal, and will result in accounting~~ for ~~these revenues~~recurring services is consistent with ~~our current accounting policy.~~ the invoicing of clients as they both occur during the respective client payroll period for which the services are provided. 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 June 30, 2021 and 2020 were as follows:

We expect to ~~adopt this~~recognize $7.7 million of deferred revenue related to material right performance obligations in the remainder of 2021, $14.2 million of such deferred revenue in 2022, and $70.6 million of such deferred revenue thereafter.

Assets Recognized from the Costs to Obtain and Costs to Fulfill Revenue Contracts

We recognize an asset for the incremental costs of obtaining a contract with a client if we expect the amortization period to be longer than one year. We also recognize an asset for the costs to fulfill a contract with a client if such costs are specifically identifiable, generate or enhance resources used to satisfy future performance obligations, and are expected to be recovered. We have determined that substantially all costs related to implementation activities are administrative in nature and also meet the capitalization criteria under ASC 340-40. 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 expected period of benefit has been determined to be the estimated life of the client relationship primarily because we incur no new ~~standard using the full retrospective method and will complete our implementation process prior~~costs to obtain, or costs to fulfill, a contract upon renewal of such contract. Additional commission costs may be incurred when an existing client purchases additional applications; however, these commission costs relate solely to the ~~adoption of this ASU on January 1, 2018.~~

~~In February 2016, the FASB issued ASU No. 2016-02 “Leases (Topic 842).” The purpose of the guidance is to increase the transparency~~additional applications purchased and ~~comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet as well as providing additional disclosure requirements~~are not related to leasing arrangements. The new guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018, though early adoption is permitted. Full retrospective application is prohibited. Wecontract renewal. Furthermore, additional fulfillment costs associated with existing clients purchasing additional applications are minimized by our seamless single-database platform. These assets are presented as deferred contract costs in the ~~preliminary stages of gathering data and assessing the impact of the new lease standard, however, we anticipate that the adoption of this accounting standard will materially affect our~~accompanying consolidated balance ~~sheets~~sheets. Amortization expense related to costs to obtain and ~~may require changes~~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.

(tabular dollars and ~~processes that we use to account~~shares in thousands, except per share amounts)

The following tables present the asset balances and related amortization expense for ~~leases. We have not yet made any decision on the timing of adoption or method of adoption with respect to the optional practical expedients.~~these contract costs:

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

	September 30,			December 31,
	2017			2016			June 30, 2021			December 31, 2020
Property and equipment
Software and capitalized software costs							$	170,635		$	144,190
Buildings	$	60,135		$	48,250			116,025			115,772
Software and capitalized software costs		36,493			23,879
Computer equipment		25,304			18,987			76,394			68,181
Rental clocks		12,308			10,669			27,900			25,474
Furniture, fixtures and equipment		7,333			6,695			20,786			19,829
Leasehold improvements		730			680
Other								7,118			7,016
		142,303			109,160			418,858			380,462
Less: accumulated depreciation and amortization		(48,376	)		(35,833	)		(208,424	)		(178,111	)
		93,927			73,327			210,434			202,351
Construction in progress		30,845			14,528			81,529			53,833
Land		8,993			8,993			29,034			29,034
Property and equipment, net	$	133,765		$	96,848		$	320,997		$	285,218

We capitalize computer software development costs related to software developed for internal use in accordance with ~~Accounting Standards Codification (“ASC”) Topic~~ASC 350-40. For the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2021, we capitalized ~~$4.6~~$13.7 million and ~~$11.0~~$26.0 million, respectively, of computer software development costs related to software developed for internal use. For the three and ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2020, we capitalized ~~$2.9~~$11.0 million and ~~$6.6~~$20.7 million, respectively, of computer software development costs related to software developed for internal use.

Rental clocks included in property and equipment, net represent time clocks issued to clients under month-to-month operating leases. As such, these items are transferred from inventory to property and equipment and depreciated over their estimated useful lives.

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

~~Included in the construction in progress balance at September 30, 2017 and December 31, 2016 is $2.0 million and $1.1 million in retainage, respectively.~~

We capitalize interest incurred for indebtedness related to construction ~~of our principal executive offices.~~in progress. For the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2021, we incurred interest costs of ~~$0.4~~$0.3 million and ~~$1.2~~$0.7 million, respectively, of which we capitalized $0.3 million and ~~$0.5~~$0.7 million, respectively. For the three and ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2020, we incurred interest costs of ~~$0.3~~$0.4 million and ~~$1.0~~$0.8 million, respectively, of which we capitalized ~~$0.1~~$0.4 million and ~~$0.3~~$0.8 million, respectively. Included in the construction in progress balance at June 30, 2021 and December 31, 2020 is $3.9 million and $3.5 million in retainage, respectively.

Depreciation and amortization expense for property and equipment ~~net~~ was ~~$4.8~~$15.6 million and ~~$13.0~~$30.5 million, respectively, for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017.~~2021. Depreciation and amortization expense for property and equipment ~~net~~ was ~~$3.2~~$13.0 million and ~~$8.5~~$25.2 million, respectively, for the three and ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2020.

~~Goodwill represents the excess of cost over our net tangible and identified intangible assets.~~ As of ~~September~~both June 30, ~~2017~~2021 and December 31, ~~2016, we had~~2020, goodwill ofwas $51.9 million. We have selected June 30 as our annual goodwill impairment testing ~~date~~date. We performed a qualitative analysis of the fair value of our goodwill and determined there was no0 impairment as of June 30, ~~2017. For the nine months ended September~~2021. As of June 30, ~~2017~~2021 and ~~the year ended~~ December 31, ~~2016,~~2020, there were no indicators of impairment.

In connection with our marketing initiatives, we have purchased the naming rights to the downtown Oklahoma City arena that is home to the Oklahoma City Thunder National Basketball Association franchise. Under the terms of the naming rights agreement, we have committed to make estimated payments escalating annually from $4.0 million to $6.1 million through 2035. Upon the conclusion of the initial term, the agreement may be extended upon the mutual agreement of both parties for an additional five-year period. The cost of the naming rights has been recorded as an intangible asset with an offsetting liability as of the date of the contract. The intangible asset is being amortized over the life of the agreement on a straight line basis commencing in June 2021. The offsetting liability is being relieved through sales and marketing expense using the effective interest method over the life of the agreement.

All of our intangible assets other than goodwill are considered to have ~~finite~~definite lives and, as such, are subject to amortization. The following ~~tables provide~~table presents the components of intangible ~~assets:~~assets within our consolidated balance sheets:

	September 30, 2017									June 30, 2021
	Weighted Average Remaining				Accumulated					Weighted Average Remaining				Accumulated
	Useful Life		Gross		Amortization			Net		Useful Life		Gross		Amortization			Net
	(Years)									(Years)
Intangibles:
Naming rights											15.4	$	60,199	$	(325	)	$	59,874
Trade name		4.8		3,194		(2,183	)		1,011		1.0		3,194		(2,981	)		213
Total			$	3,194	$	(2,183	)	$	1,011			$	63,393	$	(3,306	)	$	60,087

~~The weighted average remaining useful life of our intangible assets was 4.8 years as of September 30, 2017.~~ Amortization of intangible assets for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2021 was ~~$0.1~~$0.4 million and ~~$0.9~~$0.4 million, respectively. Amortization of intangible assets for the three and ~~nine~~six months ended ~~September~~June 30, ~~2016~~2020 was ~~$0.4~~less than $0.1 million and ~~$1.2~~$0.1 million, respectively. We estimate the aggregate amortization expense will be $2.1 million for the remainder of 2021, $4.0 million for 2022, and $3.9 million for 2023, 2024, 2025 and 2026, respectively.

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

~~As of the dates indicated, our long-term~~Long-term debt consisted of the following:

AsOn December 7, 2017, we entered into a senior secured term credit agreement (as amended from time to time, the “Term Credit Agreement”), pursuant to which JPMorgan Chase Bank, N.A., Bank of ~~September 30, 2017, our indebtedness consisted of (i) a~~America, N.A. and Kirkpatrick Bank made certain term ~~note~~loans to us (the “Term Loans”). Our obligations under the ~~2021 Consolidated Loan due to Kirkpatrick Bank (the “2021 Consolidated Loan”), (ii) an 84-month term loan from Kirkpatrick Bank (the “2023~~ Term Loan”), which we obtained by converting the $5.0 million outstanding principal balance of a construction loan that was used to partially finance the construction of our third headquarters building (the “2015 Construction Loan”), and (iii) a construction loan from Kirkpatrick Bank, which was used to finance the new parking garage and is available to finance the ongoing construction of a fourth headquarters building (the “2016 Construction Loan”).

~~The 2021 Consolidated Loan matures on May 30, 2021. Under the 2021 Consolidated Loan, interest is payable monthly and accrues at a fixed rate of 4.75% per annum. The 2021 Consolidated Loan is~~Loans are secured by a mortgage ~~covering~~and first priority security interest in our corporate headquarters property. The Term Loans mature on September 7, 2025 and ~~certain personal property relating~~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 June 30, 2021, our long-term indebtedness consisted solely of the Term Loans made under the Term Credit Agreement. Unamortized debt issuance costs of $0.2 million as of both June 30, 2021 and December 31, 2020 are presented as a direct deduction from the carrying amount of the debt liability.

Under the Term Credit Agreement, we are subject to ~~our headquarters. The 2021 Consolidated Loan includes certain~~two material financial covenants, ~~including maintaining~~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 ~~to fixed charges (defined as current maturities~~ratio of ~~long-term debt, interest expense, rent expense and distributions) of~~not greater than ~~1.2~~2.0 to 1.0. As of June 30, 2021, we were in compliance with these covenants.

On February 12, 2018, we entered into a senior secured revolving credit agreement (the “Revolving Credit Agreement”) with JPMorgan Chase Bank, N.A. 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 June 30, 2021, we did 0t 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 ~~which is measured~~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 ~~quarterly basis. We~~facility of the size and type of the Facility. As of June 30, 2021, we were in compliance with all ~~of these~~ covenants ~~as of September 30, 2017.~~

We entered into the 2015 Construction Loan with Kirkpatrick Bank on May 13, 2015 and converted the outstanding principal balance into the 2023 Term Loan on August 1, 2016. The 2015 Construction Loan allowed us to borrow a maximum aggregate principal amount equalrelated to the lesser of (i) $11.0 million or (ii) 80% of the appraised value of the constructed property. The 2023 Term Loan matures on August 31, 2023 and is secured by a mortgage covering our headquarters and certain personal property relating to our headquarters. Interest on the 2023 Term Loan is payable monthly and accrues at a fixed rate of 3.4% per annum. The 2023 Term Loan includes the same covenants as those disclosed above with respect to the 2021 Consolidated Loan. We were in compliance with all of these covenants as of September 30, 2017.

We entered into the 2016 Construction Loan with Kirkpatrick Bank on August 2, 2016. As of September 30, 2017, there was $5.3 million outstanding under the 2016 Construction Loan. The 2016 Construction Loan allows us to borrow a maximum aggregate principal amount equal to the lesser of (i) $28.6 million or (ii) 80% of the appraised value of the constructed properties. The 2016 Construction Loan matures on the earlier of the completion of construction or February 2, 2019, with interest accruing at the greater of (i) the prime rate, plus 50 basis points or (ii) 4.0%. At maturity, the outstanding principal balance of the 2016 Construction Loan, if any, will be automatically converted into an 84-month term loan that will accrue fixed interest at the prevailing 7/20 London Interbank Offered Rate swap interest rate in effect as of the commencement date, plus 225 basis points. Revolving Credit Agreement.

As of ~~September~~June 30, ~~2017~~2021 and December 31, ~~2016,~~2020, the carrying value of our total long-term debt ~~including current portion, was $34.4 million and $29.8 million, respectively, which~~ approximated its fair value as of ~~both dates.~~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.

In December 2017, we entered into a floating-to-fixed interest rate swap agreement to limit the exposure to floating interest rate risk related to the Term Loans. 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. 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. See Note 8, “Fair Value of Financial Instruments”. 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 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. The interest rate swap agreement has a maturity date of September 7, 2025. For the three and six months ended June 30, 2021, we recorded gains of less than $0.1 million and $0.7 million, respectively, for the change in fair value of the interest rate swap, and for the three and six months ended June 30, 2020, we recorded losses of $0.1 million and $1.7 million, respectively, for the change in fair value of the interest rate swap. The change in the fair value of the interest rate swap is included in Other income (expense), net in the consolidated statements of income.

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. 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. 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. These available-for-sale securities are recognized in the consolidated balance sheets at fair value, which approximates the amortized cost of the securities. All of our available-for-sale securities had expected maturity dates of twelve months or less at June 30, 2021.

As discussed in Note 7, during the year ended December 31, 2017, we entered into an interest rate swap. The interest rate swap is measured on a recurring basis based on quoted prices for similar financial instruments and other observable inputs recognized at fair value.

The accounting standard for fair value measurements establishes a three-level fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

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

~~Our employees that are~~Employees over the age of ~~21 and~~18 who have completed ninety ~~(90)~~ days of service are eligible to participate in our 401(k) plan. We have made a Qualified Automatic Contribution Arrangement (“QACA”) election, whereby ~~we make a matching~~the Company matches the contribution ~~for~~of our employees equal to 100% of the first 1% of salary deferrals and 50% of salary deferrals between 2% and 6%, up to a maximum matching contribution of 3.5% of an employee’s salary each plan year. We are allowed to make additional discretionary matching contributions and discretionary profit sharing contributions. Employees are 100% vested in amounts attributable to salary deferrals and rollover contributions. 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 ~~amounted to $0.7~~

were $2.6 million and ~~$2.8~~$5.9 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2021, respectively. Matching contributions ~~amounted to $0.9~~were $2.2 million and ~~$2.5~~$4.4 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2020, respectively.

The ESPP has overlapping offering periods, with each offering period lasting approximately 24 months. At the beginning of each offering period, eligible employees may elect to contribute, through payroll deductions, up to 10% of their compensation, subject to an annual ~~per employee maximum.~~per-employee maximum of $25,000. Eligible employees purchase shares of the Company’s common stock at a price equal to 85% of the fair market value of the shares on the exercise date. The maximum number of shares that may be purchased by a participant during each offering period is 2,000 shares, subject to ~~IRS limits.~~limits specified by the Internal Revenue Service. The shares reserved for purposes of the ESPP are shares we purchase in the open market. The maximum aggregate number of shares of the Company’s common stock that may be purchased by all participants under the ESPP is ~~2,000,000~~2.0 million shares. Eligible employees purchased ~~61,021~~24,717 and ~~90,571~~32,764 shares of the Company’s common stock under the ESPP during the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2021 and ~~2016,~~2020, respectively. Compensation expense related to the ESPP is recognized on a straight-line basis over the requisite service period. Our compensation expense related to the ESPP was ~~$0.2~~$0.7 million and ~~$0.5~~$1.4 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2021, respectively. Our compensation expense related to the ESPP was ~~$0.1~~$0.4 million and ~~$0.4~~$0.8 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2016.~~

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 because of the short-term nature of the instruments. See Note 5 for information on the fair value of debt.

~~We did not have any financial instruments that were measured on a recurring basis at either September 30, 2017 or December 31, 2016.~~

Basic earnings per share is based on the weighted average number of shares of common stock outstanding for the period. Diluted earnings per share is computed in a similar manner to basic earnings per share after assuming the issuance of shares of common stock for all potentially dilutive shares of restricted stock whether or not they are vested.

In accordance with ASC Topic 260, “Earnings Per ~~Share”,~~Share,” the two-class method determines earnings for each class of common stock and participating securities according to an earnings allocation formula that adjusts the income available to common stockholders for dividends or dividend equivalents and participation rights in undistributed earnings. 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 ~~outstanding~~unvested shares of restricted stock granted in 2015 are considered participating securities, while all other ~~outstanding~~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.

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

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

	Three Months Ended						Nine Months Ended						Three Months Ended June 30,					Six Months Ended June 30,
	September 30, 2017			September 30, 2016			September 30, 2017			September 30, 2016			2021		2020			2021		2020
Numerator:
Net income	$	14,067		$	6,198		$	53,902		$	35,207		$	52,278	$	28,589		$	116,894	$	91,604
Less: income allocable to participating securities		(39	)		(47	)		(149	)		(271	)		—		(13	)		—		(39	)
Income allocable to common shares	$	14,028		$	6,151		$	53,753		$	34,936		$	52,278	$	28,576		$	116,894	$	91,565
Add back: undistributed earnings allocable to participating securities	$	39		$	47		$	149		$	271		$	—	$	13		$	—	$	39
Less: undistributed earnings reallocated to participating securities		(38	)		(47	)		(146	)		(271	)		—		(13	)		—		(39	)
Numerator for diluted earnings per share	$	14,029		$	6,151		$	53,756		$	34,936		$	52,278	$	28,576		$	116,894	$	91,565
Denominator:
Weighted average common shares outstanding		50,315,455			50,315,455			50,315,455			50,315,455
Weighted average common shares repurchased		(1,675,171	)		(329,586	)		(1,360,203	)		(117,296	)
Adjustment for vested restricted stock		9,362,938			7,833,865			8,795,952			7,317,687
Shares for calculating basic earnings per share		58,003,222			57,819,734			57,751,204			57,515,846
Basic weighted average shares outstanding														57,853		57,568			57,797		57,611
Dilutive effect of unvested restricted stock		870,280			1,087,547			1,088,567			1,277,633			239		669			338		752
Shares for calculating diluted earnings per share		58,873,502			58,907,281			58,839,771			58,793,479
Diluted weighted average shares outstanding														58,092		58,237			58,135		58,363
Earnings per share:
Basic	$	0.24		$	0.11		$	0.93		$	0.61		$	0.90	$	0.50		$	2.02	$	1.59
Diluted	$	0.24		$	0.10		$	0.91		$	0.59		$	0.90	$	0.49		$	2.01	$	1.57

During the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 for a detailed description of the Company’s stock-based compensation awards, including information related to vesting terms and service and performance conditions.

~~The following table summarizes restricted stock awards activity for the nine~~six months ended ~~September~~June 30, ~~2017:~~

~~On April 26, 2017,~~2021, we issued an aggregate of ~~613,677~~176,060 restricted shares of ~~restricted~~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”) ~~to our executive officers and certain other employees. Certain~~, consisting of 42,934 shares ~~of restricted stock are~~ subject to market-based vesting conditions (“Market-Based Shares”) and ~~certain~~133,126 shares ~~of restricted stock are~~ subject to time-based vesting ~~conditions.~~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 ~~market-based vesting~~the terms and conditions ~~will vest 50% if~~of the ~~Company’s Total Enterprise Value (as defined in~~LTIP and the applicable restricted stock award ~~agreement) equals or exceeds $4.15 billion and 50% if the Company’s Total Enterprise Value (“TEV”) equals or exceeds $4.45 billion.~~agreement. The Time-Based Shares ~~subject~~granted to ~~market-based vesting conditions will be forfeited if they do not vest within six years of the date of grant. Shares subject to time-based vesting conditions~~non-executive employees will vest over periods ranging from 2three to ~~5 years.~~four years, provided that the recipient is employed by, or providing services to, the Company on the applicable vesting date, and subject to the terms and conditions of the LTIP and the applicable restricted stock award agreement.

Of the 133,126 Time-Based Shares mentioned above, on May ~~1, 2017,~~3, 2021, we issued an aggregate of ~~9,870 shares of restricted stock under~~3,558 Time-Based Shares to the ~~LTIP to~~non-employee members of our board of directors. Such shares of restricted stock will cliff-vest on the seventh (7^th) day following the first (1^st) anniversary of the date of grant, ~~date,~~ provided that ~~the~~such director is providing services to the Company through the applicable vesting ~~date.~~date, and subject to the terms and conditions of the LTIP and the applicable restricted stock award agreement.

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

In February 2021, the Compensation Committee of the Board of Directors authorized the granting of performance-based restricted stock units (“PSUs”) to certain executive officers pursuant to the LTIP (the “PSU Awards”). Each PSU granted under the LTIP represents a notional share of the Company’s common stock. The PSU Awards represented an aggregate of 52,470 target units that may increase to an aggregate of 131,176 awarded units based upon the Company’s performance over two separate performance periods: (i) a two-year performance period commencing on January 1, 2021 and ending on December 31, 2022 (the “Two-Year Performance Period”); and (ii) a three-year performance period commencing on January 1, 2021 and ending on December 31, 2023 (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 ~~activity~~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 ~~nine months ended September 30, 2017,~~final 60 trading day period of the ~~associated compensation cost recognized~~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 ~~vesting event~~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 certain executive-level benefits and remove the termination and severance provisions, and (ii) forfeits and releases the PSU award granted to Mr. York on February 10, 2021.

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 ~~number of~~PSU Award Agreement.

(tabular dollars and shares ~~withheld to satisfy tax withholding obligations:~~in thousands, except per share amounts)

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

¹ ~~All shares withheld to satisfy tax withholding obligations are held as treasury stock.~~

For the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2021, our total compensation expense related to restricted stock awards and PSU awards, in the aggregate, was ~~$14.3~~$23.8 million and ~~$31.8~~$47.4 million, respectively. For the three and ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2020, our total compensation expense related to restricted stock awards and PSU awards, in the aggregate, was ~~$14.3~~$21.2 million and ~~$18.9~~$37.0 million, respectively. ~~There was $38.4 million of~~

The following table presents the unrecognized compensation cost ~~net of estimated forfeitures,~~and the related toweighted average recognition period associated with unvested ~~shares of~~ restricted stock ~~outstanding~~awards and unvested PSU awards as of ~~September~~June 30, ~~2017. The unrecognized compensation cost for the restricted shares is expected to be recognized over a weighted average period of 2.0 years as of September 30, 2017.~~2021.

We capitalized stock-based compensation costs related to software developed for internal use of ~~$1.3~~$1.9 million and ~~$2.6~~$3.4 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2021, respectively. We capitalized stock-based compensation costs related to software developed for internal use of ~~$1.1~~$2.1 million and ~~$1.4~~$3.7 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2020, respectively.

Our Chief Sales Officer owned a .01% general partnership interest and a 10.49% limited partnership interest in 417 Oakbend, LP, a Texas limited partnership, until April 2016. For the period under his ownership during 2016, we paid rent on our Dallas office space to 417 Oakbend, LP in the amount of $0.1 million.

~~We have employment agreements with~~As previously disclosed, starting in February 2019, we received subpoenas and requests from the SEC focused on whether certain of our ~~executive officers. The agreements allow~~clients were charged, and paid, an additional amount for ~~annual compensation, participation~~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 ~~executive benefit plans,~~the aggregate, to such clients. We have also instituted a control aimed at preventing this situation from reoccurring. This issue did not have a material impact on our financial results for any prior period. In connection with this matter, we have agreed to pay a total of $0.25 million to the SEC to settle two accounting-related charges concerning our books and ~~performance-based cash bonuses.~~

~~Legal Proceedings~~records and internal controls. We have neither admitted nor denied the SEC’s findings with respect to these charges.

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

We lease office space under several noncancellable operating leases with contractual terms expiring from 2018 to 2024. Minimum rent expenses are recognized over the lease term. The lease term is defined as the fixed noncancellable term of the lease plus all periods, if any, for which failure to renew the lease imposes a penalty on us in an amount that a renewal appears, at the inception of the lease, to be reasonably assured. When a lease contains a predetermined fixed escalation of the minimum rent, we recognize the related rent expense on a straight-line basis and record the difference between the recognized rent expense and the amount payable under the lease as a liability. We had $1.1 million and $1.1 million, as of September 30, 2017 and December 31, 2016, respectively, recorded as a liability for deferred rent.

Rent expense under operating leases for the three and nine months ended September 30, 2017 was $1.4 million and $4.3 million, respectively. Rent expense under operating leases for the three and nine months ended September 30, 2016 was $1.5 million and $4.2 million, respectively.

The provision for income taxes is based on a current estimate of the annual effective income tax rate adjusted to reflect the impact of discrete items. Significant management judgment is required in estimating operating income in order to determine our effective income tax rate. We recognized an income tax benefit of $2.7 million for the three months ended September 30, 2017, as compared to a $6.1 million tax benefit for the three months ended September 30, 2016. Income tax expense decreased to $4.9 million for the nine months ended September 30, 2017 from $9.3 million for the nine months ended September 30, 2016. OurCompany’s effective income tax rate was ~~8.3%~~17.9% and ~~20.9%~~20.4% for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2021 and ~~2016,~~2020, respectively. The lower effective ~~income~~ tax rate for the ~~nine~~six months ended ~~September~~June 30, ~~2017 and the income tax benefit for the three months ended September 30, 2017 are~~2021 is primarily ~~a result of the recognition of~~related to an increase in excess tax benefits from the vesting of share-based payment awards. We recognized a discrete adjustment related to excess tax benefits to income tax expense of $6.9 million and $15.1 million for the three and nine months ended September 30, 2017, respectively.stock-based compensation.

On October 13, 2017, the Company’s TEV reached $4.45 billion, resulting in the vesting of approximately 138,490 shares of restricted stock. In connection with this vesting, the Company recognized approximately $4.3 million of compensation cost, and withheld 57,916 shares to satisfy tax withholding obligations for certain employees. All shares withheld to satisfy tax withholding obligations are held as treasury stock.

On October 30, 2017, our Board of Directors amended and extended the stock repurchase plan, such that we are authorized to purchase (in the aggregate) up to an additional $75 million of common stock over a 24-month period. The stock repurchase plan will expire on October 30, 2019.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to provide a reader of our financial statements with a narrative from the perspective of our management on our financial condition, results of operations, liquidity, and certain other factors that may affect our future results. The following discussion and analysis should be read in conjunction with (i) the accompanying unaudited consolidated financial statements and notes thereto for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2021, (ii) the audited consolidated financial statements and notes thereto for the year ended December 31, ~~2016~~2020 included in our Annual Report on Form 10-K (the “Form 10-K”) filed with the Securities and Exchange Commission (the “SEC”) on February ~~21, 2017~~18, 2021 and (iii) the discussion under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Form 10-K. Except for certain information as of December 31, ~~2016,~~2020, all amounts herein are unaudited. Unless we state otherwise or the context otherwise requires, the terms “we,” “us,” “our” and the “Company” refer to Paycom Software, Inc. and its consolidated subsidiaries. All amounts presented in tables, other than ~~share and~~ per share amounts, are in thousands unless otherwise noted.

The following discussion contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are any statements that ~~refer~~look to ~~the Company’s estimated or anticipated results, other non-historical facts or~~ future events and include, but are not limited to, statements regarding our business strategy; anticipated future operating results and operating expenses, cash flows, capital resources, dividends and liquidity; trends, opportunities and risks affecting our business, industry and financial results; future expansion or growth plans and potential for future growth; our ability to attract new clients to purchase our solution; our ability to retain clients and induce them to purchase additional applications; our ability to accurately forecast future revenues and appropriately plan our expenses; market acceptance of our solution and applications; our expectations regarding future revenues generated by certain applications; ~~the impact of~~our ability to attract and retain qualified employees and key personnel; future regulatory, judicial orand legislative changes; how certain factors affecting our performance correlate to improvement or deterioration in the labor market; our plan to open additional sales offices and our ability to effectively execute such plan; the sufficiency of our existing cash and cash equivalents to meet our working capital and capital expenditure needs over the next 12 months; our ability to ~~expand~~relocate our ~~corporate headquarters~~Texas operations facility within an expected timeframe; our plans regarding our capital expenditures and investment activity as our business grows, including with respect to our new Texas operations facility and research and development; the expected impact on our consolidated financial statements of new accounting pronouncements; our plans to ~~purchase~~repurchase shares of our common stock through a stock repurchase plan; our expected income tax rate for future periods; and the ~~anticipated~~ impact of ~~recent hurricanes~~the novel coronavirus (COVID-19) pandemic on our ~~operating~~business, results ~~in future periods.~~of operations, cash flows, financial condition and liquidity. In addition, forward-looking statements also consist of statements involving trend analyses and statements including such words as ~~“may,~~“anticipate,” “believe,” “could,” ~~“anticipate,~~“estimate,” “expect,” “will,” “intend,” “may,” “plan,” “potential,” “should,” “would,~~” “might,” “plan,” “expect,” “potential,” “possible,” “project,~~” and similar expressions or the negative of such terms or other comparable terminology. ~~These~~

Forward-looking statements are neither historical facts nor assurances of future performance, and are based only on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Therefore, you should not rely on any of these forward-looking statements. Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include, among others, the following:

Forward-looking statements are based only on information currently available to us and speak only as of the date of this ~~Quarterly Report on~~ Form 10-Q and are subject to business and economic risks. As such, our actual results could differ materially from those set forth in the forward-looking statements as a result of the factors set forth in Part I, Item 1A, “Risk Factors” of the Form 10-K and in our other reports filed with the SEC. We do not undertake any obligation to update or revise the forward-looking statements to reflect events that occur or circumstances that exist after the date on which such statements were made, except to the extent required by law.

We are a leading provider of a comprehensive, cloud-based human capital management (“HCM”) ~~software~~solution delivered as Software-as-a-Service. We provide functionality and data analytics that businesses need to manage the complete employment lifecycle, from recruitment to retirement. Our solution requires virtually no customization and is based on a core system of record maintained in a single database for all HCM functions, including talent acquisition, time and labor management, payroll, talent management and human resources management applications. Our user-friendly software allows for easy adoption of our solution by employees, enabling self-management of their HCM activities in the cloud, which reduces the administrative burden on employers and increases employee productivity.

We generate revenues from (i) fixed amounts charged per billing period plus a fee per employee or transaction processed orand (ii) fixed amounts charged per billing period. We do not require clients to enter into long-term contractual commitments with us. Our billing period varies by client based on when ~~they pay their~~each client pays its employees, which ~~is either~~may be weekly, bi-weekly, semi-monthly or monthly. We serve a diverse client base in terms of size and industry. None of our clients constituted more than one-half of one percent of our revenues for the ~~nine~~six months ended ~~September~~June 30, ~~2017.~~

2021. Our revenues are primarily generated through our sales force that solicits new clients and our client relations representatives who sell new applications to existing clients. During the first nine months of 2017, we opened new sales offices in Milwaukee, Richmond and Long Island. The opening of these three new offices brings our total number of sales teams to 45 sales teams located in 25 states. We plan to open additional sales offices in the future to further expand our presence in the U.S. market.

Our continued growth depends on attracting new clients through further penetration of our existing markets and geographic expansion into new markets, targeting a high degree of client employee usage across our solution, and ~~the introduction of~~introducing new applications to our existing client base. We ~~also expect that changes in certain factors affecting~~believe our ~~performance~~ability to continue to develop new applications and to improve existing applications will ~~correlate with improvement or deterioration~~enable us to increase revenues in the ~~labor~~future, and the number of our new applications adopted by our clients has been a significant factor in our revenue growth. We also plan to open additional sales offices in the future and leverage virtual sales meetings to further expand our presence in the U.S. market.

Our principal marketing ~~program includes~~efforts include national and local advertising campaigns, email campaigns, social and digital media campaigns, search engine marketing methods, tradeshows, print advertising and outbound marketing including ~~TV and print advertising.~~personalized direct mail campaigns. In addition, we generate leads and build recognition of our brand and thought leadership with relevant and informative content, such as white papers, blogs, podcast episodes and webinars.

Throughout our history, we have built strong relationships with our clients. As the HCM needs of our clients evolve, we believe that we are well-positioned to expand the HCM spending of our clients and we believe this opportunity is significant. To be successful, we must continue to demonstrate the operational and economic benefits of our solution, as well as effectively hire, train, motivate and retain qualified personnel.

As a result of our significant revenue growth and geographic expansion, ~~since our initial public offering in April 2014,~~ we are presented with a variety of opportunities and challenges. Our payroll application is the foundation of our solution and all of our clients are required to utilize this application in order to access our other applications. Consequently, we have historically generated the majority of our revenues from our payroll ~~processing,~~applications, although our revenue mix has evolved and will continue to evolve as we develop and add new non-payroll applications to our solution. We believe our strategy of focusing on increased employee usage is key to long-term client satisfaction and client retention. Client adoption of new applications ~~has~~and client employee usage of both new and existing applications have been a significant ~~factor~~factors in our revenue growth, ~~over the last three years~~ and we expect ~~that~~ the continuation of this trajectory will depend, in part, on the introduction of ~~new~~ applications to our existing client ~~base.~~base that encourage and promote more employee usage. Moreover, in order to increase revenues and continue to improve our operating results, we must also attract new clients. We intend to obtain new clients by (i) ~~opening~~continuing to leverage our sales force productivity within markets where we currently have existing sales offices, ~~in new metropolitan areas and~~ (ii) ~~continuing to expand~~expanding our presence in metropolitan areas where we currently have an existing sales office through adding sales teams or offices, thereby increasing the number of sales professionals within such ~~markets.~~markets, and (iii) opening sales offices in new metropolitan areas.

Our target client size range is 50 to 10,000 employees. While we continue to serve a diversified client base ranging in size from one employee to many thousands of employees, the average size of our clients has grown significantly as we have organically grown our operations, increased the number of applications we offer and gained traction with larger companies. We believe larger employers

represent a substantial opportunity to increase the number of potential clients and to increase our revenues per client, with limited incremental cost to us. Because we charge our clients on a per employee basis for certain services we provide, any increase or decrease in the number of employees of our clients will have a positive or negative impact, respectively, on our results of operations. As discussed in more detail below, client headcount fluctuations are particularly relevant in light of the ongoing COVID-19 pandemic. Generally, we expect that changes in certain factors affecting our performance will correlate with improvement or deterioration in the labor market.

We collect funds from clients in advance of either the applicable due date for payroll tax submissions or the applicable disbursement date for employee payment services. Those collections from clients are typically disbursed from one to 30 days after receipt, with some funds being held for up to 120 days. We typically invest funds held for clients in money market funds, demand deposit accounts, commercial paper and certificates of deposit until they are paid to the applicable tax or regulatory agencies or to client employees. As we introduce new applications, expand our client base and renew and expand relationships with existing clients, we expect our average funds held for clients balance and, accordingly, interest earned on funds held for clients, will increase; however, the amount of interest we earn can be positively or negatively impacted by changes in interest rates. Even if our average funds held for clients balance increases, the impact of significantly lower average interest rates could partially offset the impact of such increased balance and, as a result, have a negative impact on recurring revenue growth.

Growing our business has resulted in, and will continue to result in, substantial ~~investment~~investments in sales professionals, operating expenses, system development and programming costs and general and administrative expenses, which ~~has~~have increased and will continue to increase our expenses. Specifically, our revenue growth and geographic expansion drive increases in our employee headcount, which in turn precipitates increases in (i) salaries and benefits, (ii) stock-based compensation expense and (iii) facility costs related to the expansion of our corporate ~~headquarters.~~headquarters and operations facilities and additional sales office leases.

We believe the challenges of managing the ever-changing complexity of payroll and human resources will continue to drive companies to turn to outsourced providers for help with their HCM needs. The HCM industry historically has been driven, in part, by legislation and regulatory action, including COBRA, changes to the minimum wage laws or overtime rules, and legislation from federal, state or municipal taxation authorities.

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. Because payroll forms are typically processed in the first quarter of the year, first quarter revenues and margins are generally higher than in subsequent quarters. 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. For the ~~nine~~three months ended ~~September~~June 30, ~~2017~~2021 and ~~2016,~~2020, our total gross margins were approximately ~~83%~~85% and 84%, respectively. For the six months ended June 30, 2021 and 2020, our total gross margins were approximately 86%. Although our gross margins may fluctuate from ~~quarter-to-quarter~~quarter to quarter due to seasonality and hiring trends, we expect that our gross margins will remain relatively consistent in future periods.

Beginning in February 2020, we took various actions in order to minimize the risk of COVID-19 to our employees, our clients, and the communities in which we operate. In March 2020, we prohibited all business-related travel until further notice and began transitioning our employees to work-from-home arrangements. As of June 30, 2021, 90% of our employees were working remotely. Our sales employees have been conducting all meetings with current and prospective clients virtually since March 2020. We have started transitioning certain employees to safely return to our offices and permitting a limited amount of business travel, and will continue to actively monitor the situation. We may take further actions that alter our business operations as may be required by federal, state or local authorities or that we determine are in the best interests of our employees and clients. Business continuity and safety will continue to guide our return-to-office plans.

The COVID-19 pandemic has disrupted the operations of our clients and client prospects and may continue to do so for an indefinite period of time. Across many industries, temporary and permanent business closures as well as business occupancy limitations have resulted in significant layoffs and employee furloughs since late March 2020. Because we charge our clients on a per-employee basis for certain services we provide, decreases in headcount at our clients as of the onset of the pandemic negatively impacted our recurring revenue beginning in the second quarter of 2020, and we expect that our recurring revenue in future periods will continue to be negatively impacted by such headcount reductions until employment levels among such client base return to pre-pandemic levels. Further, at the onset of the COVID-19 pandemic, a limited number of new clients temporarily delayed service implementation.

Between August 2019 and March 2020, the Federal Open Market Committee reduced the target range for short-term interest rates several times, with the most significant rate cut occurring in March 2020 to support the economy and potentially reduce the impacts of the COVID-19 pandemic. Due to significantly lower average interest rates during the first six months of 2021, as compared to the majority of the first six months of 2020, interest earned on funds held for clients for the three and six months ended June 30, 2021 decreased from the comparable prior year periods, which had a negative effect on recurring revenue growth.

Demand for our solution remains high and, despite the economic challenges brought on by the COVID-19 pandemic, we remain confident in the overall health of our business, the strength of our product offerings, and our ability to continue to execute on our strategy. Prior to the COVID-19 pandemic, our sales force historically traveled frequently to sell our solution. The current remote work environment presents a unique opportunity for our sales force, in that each sales employee is able to meet virtually with a greater number of client prospects in a given day than he or she would if conducting in-person meetings. Internally, all applications within the Paycom solution, and more specifically Employee Self-Service®, Manager on-the-Go™, Documents and Checklists, Ask Here and our enhanced Learning Management System, have been instrumental in our ability to seamlessly manage and communicate with our remote workforce. As many clients have also transitioned their workforces to work-from-home arrangements, we believe they too are recognizing the benefits of these applications and our focus on employee usage, as well as the strengths and advantages of our single database solution. In contrast, we believe the remote work environment is exposing the weaknesses and disadvantages arising from the combination of disparate systems offered by some of our competitors. We will continue to aggressively invest in sales and marketing and in research and development to drive future growth and expand our market share.

We are unable to estimate the full impact that the COVID-19 pandemic could have on our business and results of operations in the future due to numerous uncertainties, including the severity of the disease, the duration of the outbreak, the emergence of different COVID-19 variants, actions that may be taken by governmental authorities, the impact to the business of our clients and other factors identified in Part I, Item 1A “Risk Factors” in our Form 10-K that was filed with the SEC on February 18, 2021. Further, while our revenue and earnings are relatively predictable, the effect of the ongoing COVID-19 pandemic may not be fully reflected in our results of operations and overall financial performance until future periods.

The following table sets forth consolidated statements of income data and such data as a percentage of total revenues for the periods presented:

	Three Months Ended September 30,													Nine Months Ended September 30,													Three Months Ended June 30,											Six Months Ended June 30,
	2017					2016					% Change			2017					2016					% Change			2021					2020					% Change	2021				2020					% Change
Revenues
Recurring	$	99,498		98.2	%	$	75,857		98.1	%		31	%	$	313,763		98.4	%	$	237,253		98.3	%		32	%	$	237,585		98.1	%	$	177,950		98.0	%	33.5%	$	505,359	98.3	%	$	416,445		98.2	%	21.4%
Implementation and other		1,789		1.8	%		1,468		1.9	%		22	%		5,259		1.6	%		4,078		1.7	%		29	%		4,561		1.9	%		3,637		2.0	%	25.4%		8,985	1.7	%		7,510		1.8	%	19.6%
Total revenues		101,287		100.0	%		77,325		100.0	%		31	%		319,022		100.0	%		241,331		100.0	%		32	%		242,146		100.0	%		181,587		100.0	%	33.3%		514,344	100.0	%		423,955		100.0	%	21.3%
Cost of revenues
Operating expenses		15,324		15.1	%		13,227		17.1	%		16	%		46,019		14.4	%		34,491		14.4	%		33	%		28,773		11.9	%		23,257		12.8	%	23.7%		57,846	11.2	%		47,373		11.2	%	22.1%
Depreciation and amortization		2,502		2.5	%		1,521		1.9	%		64	%		6,829		2.1	%		4,093		1.7	%		67	%		7,637		3.1	%		6,301		3.5	%	21.2%		14,837	2.9	%		12,231		2.9	%	21.3%
Total cost of revenues		17,826		17.6	%		14,748		19.0	%		21	%		52,848		16.5	%		38,584		16.1	%		37	%		36,410		15.0	%		29,558		16.3	%	23.2%		72,683	14.1	%		59,604		14.1	%	21.9%
Administrative expenses
Sales and marketing		35,542		35.1	%		29,274		37.9	%		21	%		106,460		33.4	%		82,702		34.3	%		29	%		67,979		28.1	%		56,064		30.9	%	21.3%		130,740	25.4	%		111,082		26.2	%	17.7%
Research and development		8,112		8.0	%		6,232		8.1	%		30	%		23,004		7.3	%		14,294		5.9	%		61	%		28,224		11.7	%		21,778		12.0	%	29.6%		52,935	10.3	%		43,399		10.2	%	22.0%
General and administrative		25,967		25.6	%		24,457		31.6	%		6	%		70,450		22.1	%		54,883		22.7	%		28	%		54,063		22.3	%		40,837		22.5	%	32.4%		100,254	19.5	%		80,971		19.1	%	23.8%
Depreciation and amortization		2,403		2.4	%		2,032		2.6	%		18	%		7,069		2.2	%		5,578		2.3	%		27	%		8,380		3.5	%		6,774		3.7	%	23.7%		16,096	3.1	%		13,059		3.1	%	23.3%
Total administrative expenses		72,024		71.1	%		61,995		80.2	%		16	%		206,983		65.0	%		157,457		65.2	%		31	%		158,646		65.6	%		125,453		69.1	%	26.5%		300,025	58.3	%		248,511		58.6	%	20.7%
Total operating expenses		89,850		88.7	%		76,743		99.2	%		17	%		259,831		81.5	%		196,041		81.3	%		33	%		195,056		80.6	%		155,011		85.4	%	25.8%		372,708	72.4	%		308,115		72.7	%	21.0%
Operating income		11,437		11.3	%		582		0.8	%		1865	%		59,191		18.5	%		45,290		18.7	%		31	%		47,090		19.4	%		26,576		14.6	%	77.2%		141,636	27.6	%		115,840		27.3	%	22.3%
Interest expense		(220	)	-0.2	%		(252	)	-0.3	%		-13	%		(758	)	-0.2	%		(733	)	-0.3	%		3	%		—		0.0	%		(3	)	0.0	%	-100.0%		—	0.0	%		(19	)	0.0	%	-100.0%
Other income (expense), net		118		0.1	%		(213	)	-0.3	%		-155	%		362		0.1	%		(63	)	0.0	%		-675	%		146		0.1	%		162		0.1	%	-9.6%		775	0.2	%		(768	)	-0.2	%	-200.9%
Income before income taxes		11,335		11.2	%		117		0.2	%		9588	%		58,795		18.4	%		44,494		18.4	%		32	%		47,236		19.5	%		26,735		14.7	%	76.7%		142,411	27.8	%		115,053		27.1	%	23.8%
Provision for income taxes		(2,732	)	-2.7	%		(6,081	)	-7.8	%		-55	%		4,893		1.5	%		9,287		3.8	%		-47	%
Provision (benefit) for income taxes																												(5,042	)	-2.1	%		(1,854	)	-1.0	%	171.9%		25,517	5.1	%		23,449		5.5	%	8.8%
Net income	$	14,067		13.9	%	$	6,198		8.0	%		127	%	$	53,902		16.9	%	$	35,207		14.6	%		53	%	$	52,278		21.6	%	$	28,589		15.7	%	82.9%	$	116,894	22.7	%	$	91,604		21.6	%	27.6%

The increase in total revenues for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017 from~~2021 compared to the ~~three and nine months ended September 30, 2016,~~same periods in 2020 was ~~due to several factors, including (i)~~primarily the result of the addition of new clients and productivity and efficiency gains in mature sales offices, which are offices that have been open for at least 24 months, and in sales offices that reached maturity during the first half of 2017, (ii) contributions from the six new sales offices opened in the first three quarters of 2016 that are progressing to maturity, (iii) the sale of additional applications to our existing ~~clients, (iv) the strong performance of~~clients. In addition, our tax forms filing business ~~(v)~~in the ~~addition~~first quarter of ~~larger~~2021 contributed to the increase in total revenues for the six months ended June 30, 2021 as compared to the same period in 2020. The COVID-19 pandemic has resulted in, and may continue to result in, headcount fluctuations across our client base. Because we charge our clients on a per-employee basis for certain services we provide, the drivers of revenue for the three and six months ended June 30, 2021 described above were impacted by the headcount fluctuations within our client base. The negative effects on our client revenue of lower headcount resulting from the pandemic were more than offset by headcount additions from new clients and ~~(vi) growth in our clients’ employee headcounts~~modestly improved headcount levels at existing clients throughout the second quarter of 2021. Significantly lower average interest rates during the six months ended June 30, 2021 as ~~a result of favorable economic conditions. Nonetheless,~~compared to the ~~magnitude~~majority of the ~~increases~~six months ended June 30, 2020, had a negative effect on recurring revenue growth for the three and six months ended June 30, 2021. We expect that the foregoing adverse macroeconomic factors may continue to have a negative effect on recurring revenues in future periods for so long as such conditions persist.

The increase in implementation and other revenues for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2021 from the same periods in 2020 was ~~tempered as a~~primarily the result of increased non-refundable upfront conversion fees collected from the ~~hurricanes that hit Texas~~addition of new clients. These fees are deferred and ~~Florida in August and September. In particular, we noted certain newly signed clients delayed implementation~~recognized ratably over the ten-year estimated life of our solution, and we experienced some disruption to our prospecting and conversion efforts in the affected areas. We continue to evaluate the impact, if any, that such business disruptions may have on our operating results for the fourth quarter.

~~The increase in cost of revenues for~~During the three months ended ~~September~~June 30, ~~2017 was primarily~~2021, operating expenses increased from the comparable prior year period by $5.5 million due to a ~~$1.8~~$3.5 million increase in employee-related expenses ~~which consisted of a $1.6 million increase in expenses~~primarily attributable to growth in the number of operating personnel, ~~and~~ a ~~$0.2~~$1.2 million increase in ~~stock-based compensation expense. Additionally,~~ shipping and supplies fees and ~~ACH~~a $0.8 million increase in automated clearing house fees ~~each increased $0.1 million~~ in connection with ~~increased sales.~~the increase in revenues. Depreciation and amortization expense increased ~~$1.0~~$1.3 million ~~or 64%,~~from the comparable prior year period, primarily due to the development of additional technology and purchases of other ~~assets, particularly with respect to~~fixed assets.

During the ~~new headquarters building that was not in service in~~six months ended June 30, 2021, operating expenses increased from the comparable prior year ~~period.~~

~~The increase in cost of revenues for the nine months ended September 30, 2017 was primarily~~period by $10.5 million due to a ~~$10.1~~$6.9 million increase in employee-related expenses ~~which consisted of an $8.6 million increase in expenses~~primarily attributable to growth in the number of operating personnel, ~~and~~ a ~~$1.5~~$2.2 million increase in ~~stock-based compensation expense. Additionally,~~ shipping and supplies fees and ~~ACH~~a $1.4 million increase in automated clearing house fees ~~increased $0.9 million and $0.7 million, respectively,~~ in connection with ~~increased sales.~~the increase in revenues. Depreciation and amortization expense increased ~~$2.7~~$2.6 million ~~or 67%,~~from the comparable prior year period, primarily due to the development of additional technology and purchases of other ~~assets, particularly with respect to the new headquarters building that was not in service in the prior year period.~~fixed assets.

During the three months ended ~~September~~June 30, ~~2017,~~2021, sales and marketing ~~expense~~expenses increased from the comparable prior year period ~~primarily~~by $11.9 million due to a ~~$4.9~~$10.5 million increase in employee-related expenses, including commissions and bonuses, and a ~~$1.0~~$1.4 million increase in marketing and advertising expense ~~and a $0.4 million increase in stock-based compensation expense.~~ attributable to increased spending across most components of our marketing program.

During the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2021, sales and marketing ~~expense~~expenses increased from the comparable prior year period ~~primarily~~by $19.6 million due to a ~~$21.0~~$13.1 million increase in employee-related expenses, including commissions and bonuses ~~a $1.8 million increase in stock-based compensation expense~~ and a ~~$1.0~~$6.5 million increase in marketing and advertising ~~expense.~~ expense attributable to increased spending across most components of our marketing program. Based on positive results from recent advertising campaigns, we plan to continue to make significant investments in our marketing program and may increase spending in future periods as we see opportunities for returns on our investments.

During the three and six months ended ~~September~~June 30, ~~2017,~~2021, research and development ~~expense~~expenses increased from the comparable prior year ~~period primarily~~periods due to ~~a $1.6 million~~an increase in employee-related expenses ~~related to growth in the number~~ of ~~research~~$6.4 million and ~~development personnel and a $0.2~~$9.5 million, ~~increase in stock-based compensation expense.~~

During the nine months ended September 30, 2017, research and development expense increased from the comparable prior year period, primarily due to a $7.9 million increase in expenses related to growth in the number of research and development personnel and a $0.8 million increase in stock-based compensation expense.respectively.

As we continue the ongoing development of our platform and product offerings, we generally expect research and development expenses (exclusive of stock-based compensation) to continue to increase, particularly as we hire more personnel to support our growth. While we expect this trend to continue on an absolute dollar basis and as a percentage of total revenues, we also anticipate the rate of increase to decline over time as we leverage our growth and realize additional economies of scale. As is customary for our business, we also expect fluctuations in research and development expense as a percentage of revenue on a quarter-to-quarter basis due to seasonal revenue trends, the introduction of new products, the amount and timing of research and development costs that may be capitalized and the timing of onboarding new hires and restricted stock vesting events.

Expenditures for software developed or obtained for internal use are capitalized and amortized over a three-year period on a straight-line basis. The nature of the development projects underway during a particular period directly impacts the timing and extent of these capitalized expenditures and can affect the amount of research and development expenses in such period. The table below sets forth the amounts of capitalized and expensed research and development costs for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2021 and ~~2016:~~ 2020:

	Three months ended September 30,				Nine months ended September 30,
	2017		2016		2017		2016		Three Months Ended June 30,					Six Months Ended June 30,
									2021		2020		% Change	2021		2020		% Change
Capitalized portion of research and development	$	4,665	$	2,898	$	11,048	$	6,605	$	13,708	$	10,975	25%	$	26,003	$	20,721	25%
Expensed portion of research and development		8,112		6,232		23,004		14,294		28,224		21,778	30%		52,935		43,399	22%
Total research and development costs	$	12,777	$	9,130	$	34,052	$	20,899	$	41,932	$	32,753	28%	$	78,938	$	64,120	23%

During the three months ended ~~September~~June 30, ~~2017,~~2021, general and administrative ~~expense~~expenses increased $13.2 million from the comparable prior year period primarily due to a ~~$2.8~~$6.3 million increase in employee-related expenses, a $4.3 million increase in non-cash stock-based compensation as well as a $2.6 million increase in accounting and legal expenses.

During the six months ended June 30, 2021, general and administrative expenses increased $19.3 million from the comparable prior year period primarily due to a $12.5 million increase in non-cash stock-based compensation and a $9.2 million increase in employee-related expenses, which were partially offset by a ~~$0.8 million decrease in stock-based compensation and a $0.5~~$2.4 million decrease in accounting and legal ~~costs.~~expenses.

During the nine months ended September 30, 2017, general and administrative expense increased from the comparable prior year period due to an $8.8 million increase in stock-based compensation expense and an $8.1 million increase in employee-related expenses, which were partially offset by a $1.4 million decrease in accounting and legal costs.

During the three and nine months ended September 30, 2017, depreciation and amortization expense increased from the comparable prior year periods primarily due to the development of additional technology and purchases of other assets, particularly with respect to the new building that was not in service in the prior year periods.

The following table presents the non-cash stock-based compensation expense that is included within the specified line items in our consolidated statements of income:

	Three months ended September 30,				Nine months ended September 30,				Three Months Ended June 30,					Six Months Ended June 30,
	2017		2016		2017		2016		2021		2020		% Change	2021		2020		% Change
Non-cash stock-based compensation expense:
Non-cash stock-based compensation expense
Operating expenses	$	1,488	$	1,311	$	3,199	$	1,725	$	1,130	$	1,733	-35%	$	2,125	$	2,931	-28%
Sales and marketing		2,019		1,654		4,511		2,723		3,639		3,801	-4%		7,150		6,966	3%
Research and development		734		496		1,514		676		2,000		2,984	-33%		3,567		5,155	-31%
General and administrative		9,986		10,774		22,530		13,733		17,023		12,700	34%		34,531		21,977	57%
Total non-cash stock-based compensation expense	$	14,227	$	14,235	$	31,754	$	18,857	$	23,792	$	21,218	12%	$	47,373	$	37,029	28%

During the three and six months ended June 30, 2021, our non-cash stock-based compensation expense increased $2.6 million and $10.3 million, respectively, from the comparable prior year periods due to an increase in both the number of employees who received awards and the grant date fair value associated with the issuances in 2021.

During the three and six months ended June 30, 2021, depreciation and amortization expense increased from the comparable prior year periods primarily due to the development of additional technology and purchases of other related fixed assets.

The decreases in interest expense for the three and six months ended June 30, 2021, as compared to the comparable prior year periods were due to the timing of construction of our expanded operations facility in Grapevine, Texas, which resulted in a higher capitalization rate of interest in 2021.

The changes in other income (expense), net for the three and six months ended June 30, 2021 was primarily due to the increase in the fair value of our interest rate swap as compared to the comparable prior year periods.

The provision (benefit) for income taxes is based on a current estimate of the annual effective income tax rate adjusted to reflect the impact of discrete items. Our effective income tax rate was 17.9% and 20.4% for the six months ended June 30, 2021 and 2020, respectively. The lower effective income tax rate for the six months ended June 30, 2021 primarily resulted from an increase in excess tax benefits from stock-based compensation as compared to the six months ended June 30, 2020.

~~As of September 30, 2017, our~~Our principal sources of capital and liquidity ~~were~~are our operating cash flow and cash and cash ~~equivalents totaling $66.6 million.~~equivalents. Our cash and cash equivalents ~~are comprised~~consist primarily of demand deposit accounts, money market funds and certificates of deposit. Additionally, we maintain a senior secured revolving credit facility (the “Facility”), which can be accessed as needed to supplement our operating cash flow and cash balances. The Facility provides us the ability to borrow funds in the aggregate principal amount of $75.0 million, which may be increased to $125.0 million, subject to obtaining additional lender commitments and certain approvals and satisfying certain other conditions. We believe our existing cash and cash equivalents and cash generated from operations will be sufficient to meet our working capital and capital expenditure needs over at least the next 12 months.

We have historically ~~financed~~funded our operations from cash flows generated from operations, cash from the sale of equity securities and ~~borrowings under our loans.~~debt financing. Although we have funded most of the costs for ongoing construction projects at our corporate headquarters and other facilities from available cash, we have incurred indebtedness for a portion of these costs. Further, all purchases under our stock repurchase plans were paid for from available cash.

~~Recent Liquidity Developments~~Term Credit Agreement. As of June 30, 2021, our indebtedness consisted solely of term loans (the “Term Loans”) made under a senior secured term credit agreement (as amended from time to time, the “Term Credit Agreement”) among the Company, certain of our subsidiaries, JPMorgan Chase Bank, N.A., Bank of America, N.A. and Kirkpatrick Bank. All Term Loans were used to finance construction projects at our corporate headquarters. 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%.

Under the Term Credit Agreement, we are required to comply with certain financial and non-financial covenants, including maintaining 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 Term 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 credit agreement of this size and type. As of June 30, 2021, we were in compliance with all covenants set forth in the Term Credit Agreement.

Interest Rate Swap Agreement. In connection with entering into the Term Credit Agreement, we also entered into a floating-to-fixed interest rate swap agreement to limit the exposure to interest rate risk related to the Term Loans (the “Interest Rate Swap Agreement”). The Interest Rate Swap Agreement, which has a maturity date of September 7, 2025, provides that we receive quarterly variable interest payments based on the LIBOR rate and pay interest at a fixed rate. We have elected not to designate this interest rate swap as a hedge and, as such, changes in the fair value of the derivative instrument are recognized in our consolidated statements of income. For the three and six months ended June 30, 2021, we recorded gains of less than $0.1 million and $0.7 million, respectively, for the change in fair value of the interest rate swap, and for the three and six months ended June 30, 2020, we recorded losses of $0.1 million and $1.7 million, respectively, for the change in fair value of the interest rate swap. The change in fair value of the interest rate swap is included in Other income (expense), net in the consolidated statements of income.

Revolving Credit Agreement. On February 12, 2018, we entered into a senior secured revolving credit agreement (the “Revolving Credit Agreement”) with JPMorgan Chase Bank, N.A. and Bank of America, N.A. that provided for 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 also 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%, in each case subject to certain conditions set forth in the Revolving Credit Agreement. As of June 30, 2021, we did not have any borrowings outstanding under the Facility.

Stock Repurchase ~~Plan.~~ ~~On February 8, 2017, we announced that~~Plan and Withholding Shares to Cover Taxes. In May 2016, our Board of Directors ~~amended and extended our~~authorized a stock repurchase plan ~~originally announced on May 26, 2016, such that we were authorized to purchase (in~~allowing for the ~~aggregate) up to an additional $50.0 million~~repurchase of shares of our common stock through January 2019. On October 30, 2017, our Board of Directors again amended and extended the stock repurchase plan, such that we are authorized to purchase (in the aggregate) up to an additional $75 million of common stock over a 24-month period. The stock repurchase plan will expire on October 30, 2019. Shares may be repurchased from time-to-time in open market transactions at prevailing market prices, in privately negotiated transactions or by other means in accordance with federal securities laws, including Rule 10b5-1 ~~programs,~~programs. Since the initial authorization of the stock repurchase plan, our Board of Directors has amended and extended and authorized new stock repurchase plans from time to time. Most recently, in May 2021, our Board of Directors authorized the repurchase of up to $300.0 million of our common stock. As of June 30, 2021, there was $299.5 million available for repurchases under our stock repurchase plan. Our stock repurchase plan may be suspended or discontinued at any time. The actual timing, number and value of shares repurchased depends on a number of factors, including the market price of our common stock, general market and economic conditions, shares withheld for taxes associated with the vesting of restricted stock and other corporate considerations. The current stock repurchase plan will expire on May 13, 2023.

During the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2021, we repurchased an aggregate of ~~700,065~~94,997 shares of our common stock ~~for~~at an ~~aggregate~~average cost of ~~$47.5 million, including 404,895~~$340.59 per share, all of which were shares withheld to satisfy tax withholding obligations ~~with respect to~~for certain employees upon the ~~delivery of vested shares~~vesting of restricted ~~stock to certain employees, as discussed below.~~

~~Withholding Shares to Cover Taxes.~~ During the nine months ended September 30, 2017, we withheld 404,895 shares to satisfy tax withholding obligations with respect to the delivery of vested shares of restricted stock to certain employees.stock. Our payment of the taxes on behalf of those employees resulted in an aggregate cash expenditure of ~~$28.1~~$32.4 million ~~in cash~~ and, as such, we generally subtract the amounts attributable to such withheld shares from the aggregate amount available for future purchases under our stock repurchase plan.

~~2021 Consolidated Loan.~~ As of September 30, 2017, we had a term note under the 2021 Consolidated Loan due to Kirkpatrick Bank that matures on May 30, 2021 (the “2021 Consolidated Loan”) with an outstanding principal balance of $24.2 million. Under the 2021 Consolidated Loan, interest is payable monthly and accrues at a fixed rate of 4.75% per annum. The 2021 Consolidated Loan is secured by a mortgage covering our headquarters and certain personal property relating to our headquarters.

We are required to comply with certain financial and non-financial covenants under the 2021 Consolidated Loan, including maintaining a fixed charge coverage ratio of EBITDA to fixed charges (defined as current maturities of long-term debt, interest expense, rent expense and distributions) of greater than 1.2 to 1.0, which is measured on a quarterly basis. Further, until amounts under the 2021 Consolidated Loan are repaid, we may not, subject to certain exceptions, (i) create any mortgages or liens, (ii) make any loans, advances or extensions of credit with certain affiliates or enter into any other transactions with certain affiliates, (iii) lease any mortgaged property, (iv) make any distributions as long as an event of default exists, (v) make any material change in methods of accounting, (vi) enter into any sale and leaseback arrangement, (vii) amend, modify, restate, cancel or terminate our organizational documents, (viii) sell, transfer or convey any mortgaged property or (ix) incur funded outside debt. An event of default under the 2021 Consolidated Loan includes, among other events, (i) failure to pay principal or interest when due, (ii) breaches of certain covenants, (iii) any failure to meet the required financial covenants and (iv) an institution of bankruptcy, reorganization, liquidation or receivership. As of September 30, 2017, we were in compliance with all of the covenants under the 2021 Consolidated Loan.

~~2015 Construction Loan and 2023 Term Loan.~~ On May 13, 2015, we entered into a loan agreement with Kirkpatrick Bank to partially finance the construction of our third headquarters building (the “2015 Construction Loan”). The 2015 Construction Loan allowed us to borrow a maximum aggregate principal amount equal to the lesser of (i) $11.0 million or (ii) 80% of the appraised value of the constructed property. On August 1, 2016, we converted the $5.0 million outstanding principal balance of the 2015 Construction Loan into an 84-month term loan (“2023 Term Loan”) with interest payable monthly and accruing at a fixed rate of 3.4% per annum.

At September 30, 2017, the principal balance outstanding on the 2023 Term Loan was $4.8 million. The 2023 Term Loan matures on August 31, 2023 and is secured by a mortgage covering our headquarters and certain personal property relating to our headquarters. The 2023 Term Loan includes the same covenants as those disclosed above with respect to the 2021 Consolidated Loan. We were in compliance with all of the covenants as of September 30, 2017.

~~2016 Construction Loan.~~ On August 2, 2016, we entered into a new construction loan with Kirkpatrick Bank, which is available to finance the ongoing construction of a fourth headquarters building and a recently completed new parking garage (the “2016 Construction Loan”). As of September 30, 2017, there was $5.3 million outstanding under the 2016 Construction Loan. The 2016 Construction Loan allows us to borrow a maximum aggregate principal amount equal to the lesser of (i) $28.6 million or (ii) 80% of the appraised value of the constructed properties. The 2016 Construction Loan matures on the earlier of the completion of construction or February 2, 2019, with interest accruing at the greater of (i) the prime rate, plus 50 basis points or (ii) 4.0%. At maturity, the outstanding principal balance of the 2016 Construction Loan, if any, will be automatically converted to an 84-month term loan that will accrue fixed interest at the prevailing 7/20 London Interbank Offered Rate swap interest rate in effect as of the commencement date, plus 225 basis points.

Our cash flows from operating activities have historically been significantly impacted by profitability, implementation revenues received but deferred, our investment in sales and marketing to drive growth, and research and development. Our ability to meet future liquidity needs will be driven by our operating performance and the extent of continued investment in our operations. Failure to generate sufficient revenues and related cash flows could have a material adverse effect on our ability to meet our liquidity needs and achieve our business objectives.

As our business grows, we expect our capital expenditures and our investment activity to continue to increase. We are currently focused on the ongoing construction of our new Texas operations facility in Grapevine, Texas. Capital expenditures related to the construction of the facility began in the second quarter of 2019. Depending on certain growth opportunities, we may choose to accelerate investments in sales and marketing, acquisitions, technology and services. Actual future capital requirements will depend on many factors, including our future revenues, cash from operating activities and the level of expenditures in all areas of our business. ~~We also may use available cash to repurchase shares of our common stock.~~

As part of our payroll and payroll tax filing services, we collect funds from our clients for federal, state and local employment taxes, which we remit to the appropriate tax agencies. We invest these funds in money market funds, demand deposit accounts, commercial paper and certificates of deposit from which we earn interest income during the period between their receipt and disbursement.

Our cash flows from investing and financing activities are influenced by the amount of funds held for clients, which ~~varies~~can vary significantly from quarter to quarter. The balance of the funds we hold depends on our clients’ payroll calendars, and therefore such balance changes from period to period in accordance with the timing of each payroll cycle.

Our cash flows from financing activities are also affected by the extent to which we use available cash to purchase shares of common stock under our stock repurchase plan as well as restricted stock vesting events that ~~may~~ result in net share settlements and the Company paying withholding taxes on behalf of certain employees.

The following table summarizes the consolidated statements of cash flows for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2021 and ~~2016:~~2020:

	Nine Months Ended September 30,									Six Months Ended June 30,
	2017			2016			Change			2021			2020			% Change
Net cash provided by (used in):
Operating activities	$	92,420		$	74,435		$	17,985		$	146,443		$	107,512		36%
Investing activities		22,584			71,532			(48,948	)		(49,783	)		(189,993	)	-74%
Financing activities		(108,552	)		(122,185	)		13,633			378,635			(705,420	)	154%
Change in cash and cash equivalents	$	6,452		$	23,782		$	(17,330	)

Change in cash, cash equivalents, restricted cash and restricted cash equivalents										$	475,295		$	(787,901	)	160%

Cash ~~flows from~~provided by operating activities for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2021 primarily consisted of payments received from our ~~customers~~clients and interest earned on funds held for clients. Cash used in operating activities primarily consisted of ~~cash we invested in personnel and payments made to third party vendors~~personnel-related expenditures to support the ~~anticipated~~ growth and infrastructure of our business. These payments included costs of operations, advertising and other sales and marketing efforts, IT infrastructure development, product research and development and security and administrative costs. Compared to the ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2020, our operating cash flows for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2021 were positively impacted by the growth of our business.

Cash flows ~~from~~used in investing activities for the ~~nine~~six months ended ~~September~~June 30, ~~2017 changed~~2021 decreased from the comparable prior year period due to an $84.7 million increase in proceeds from maturities of short-term investments from funds held for clients and a $65.8 million decrease in purchases of short-term investments from funds held for clients. This decrease was slightly offset by ~~$48.9~~a $10.3 million increase in purchases of property and equipment.

Cash flows provided by financing activities for the six months ended June 30, 2021 increased from the comparable prior year period primarily due to the impact of ~~changes in funds held for clients and were further impacted by~~ a ~~$10.8~~$1,041.1 million ~~increase in cash used for purchases of property and equipment, primarily as a result of the ongoing construction of our fourth headquarters building.~~

~~Cash flows from financing activities changed by $13.6 million due~~change related to the ~~impact of changes in~~ client funds obligation, which is due to the timing of receipts from our clients and payments made to our ~~client’s employees. Financing cash flows were also impacted by an additional $13.7~~clients’ employees and applicable taxing authorities on their behalf as well as a $42.9 million decrease in ~~withholding taxes paid related to net share settlements, an $11.0 million increase in open market purchases of~~ common stock a $0.1 million increase in payment of debt issuance costs and a $0.1 million increase in principal payments on long-term debt, partially offset by a $0.4 million increase in proceeds from issuance of long-term debt to finance the ongoing construction of our fourth headquarters building.repurchases.

Our principal commitments primarily consist of long-term debt and leases for office space. ~~There~~As discussed within “Note 5. Goodwill and Intangible Assets, Net”, we have entered into a naming rights agreement pursuant to which we have committed to pay an annual fee escalating annually from $4.0 million to $6.1 million in exchange for arena naming rights and other associated benefits over the next 15.4 years. Outside of the naming rights agreement, there have been no material changes to our contractual obligations disclosed in the contractual obligations section of Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Form ~~10-K.~~10-K that was filed with the SEC on February 18, 2021. For additional information regarding our naming rights agreement, leases, long-term debt and our commitments and contingencies, see “Note 5. Leases”, “Note 6. Long-Term ~~Debt”~~Debt, Net” and “Note ~~11.~~12. Commitments and Contingencies” in the Form 10-K and “Note 5. Goodwill and Intangible Assets, Net”, “Note 6. Long-Term Debt, Net” and “Note 12. Commitments and Contingencies” in the notes to our unaudited consolidated financial statements included elsewhere in this ~~report.~~Form 10-Q.

As of ~~September~~June 30, ~~2017,~~2021, we did not have any off-balance sheet arrangements that have or are reasonably likely to have an effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that may be material to investors.

Our consolidated financial statements and accompanying notes have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”). The preparation of these consolidated financial statements requires us to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and expenses, and related disclosures. On an ongoing basis, we evaluate our estimates and assumptions to ensure that management believes them to be reasonable under the then-current facts and circumstances. Actual amounts and results may materially differ from these estimates made by management under different assumptions and conditions.

Certain accounting policies that require significant management estimates, and are deemed critical to our results of operations or financial position, are discussed in the critical accounting policies and estimates section of Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Form 10-K. There have been no material changes to the critical accounting policies disclosed in the Form 10-K.

Discussion of ~~newly~~our recently adopted accounting pronouncements can be found in Note 2 in ~~“Part I, Financial Information – Item 1. Financial Statements” in~~ this ~~report.~~Form 10-Q.

Management uses ~~Adjusted~~adjusted EBITDA and non-GAAP net income as supplemental measures to review and assess the performance of our core business operations and for planning purposes. We define (i) ~~Adjusted~~adjusted EBITDA as net income plus interest expense, taxes, depreciation and amortization, ~~and~~ non-cash stock-based compensation expense, certain transaction expenses that are not core to our operations (if any) and the change in fair value of our interest rate swap and (ii) non-GAAP net income as net income plus non-cash stock-based compensation expense, certain transaction expenses that are not core to our operations (if any) and the change in fair value of our interest rate swap, all of which isare adjusted for the effect of income taxes. Adjusted EBITDA and non-GAAP net income are metrics that provide investors with greater transparency to the information used by management in its financial and operational decision-making. We believe these metrics are useful to investors because they facilitate comparisons of our core business operations across periods on a consistent basis, as well as comparisons with the results of peer companies, many of which use similar non-GAAP financial measures to supplement results under U.S. GAAP. In addition, ~~Adjusted~~adjusted EBITDA is a measure that provides useful information to management about the amount of cash available for reinvestment in our business, repurchasing common stock and other purposes. Management believes that the non-GAAP measures presented in this Form 10-Q, when viewed in combination with our results prepared in accordance with U.S. GAAP, provide a more complete understanding of the factors and trends affecting our business and performance.

Adjusted EBITDA and non-GAAP net income are not measures of financial performance under U.S. GAAP, and should not be considered a substitute for net income, which we consider to be the most directly comparable U.S. GAAP measure. Adjusted EBITDA and non-GAAP net income have limitations as analytical tools, and when assessing our operating performance, you should not consider ~~Adjusted~~adjusted EBITDA or non-GAAP net income in isolation, or as a substitute for net income or other consolidated statements of income data prepared in accordance with U.S. GAAP. Adjusted EBITDA and non-GAAP net income may not be comparable to ~~similar~~similarly titled measures of other companies and other companies may not calculate such measures in the same manner as we do.

The following tables reconcile net income to ~~Adjusted~~adjusted EBITDA, net income to non-GAAP net income and earnings per share to non-GAAP net income per share on a basic and diluted basis:

	Three months ended September 30,						Nine months ended September 30,				Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017		2016		2021			2020			2021			2020
Net income to Adjusted EBITDA:
Net income to adjusted EBITDA:
Net income	$	14,067		$	6,198		$	53,902	$	35,207	$	52,278		$	28,589		$	116,894		$	91,604
Interest expense		220			252			758		733		—			3			—			19
Provision for income taxes		(2,732	)		(6,081	)		4,893		9,287
Provision (benefit) for income taxes												(5,042	)		(1,854	)		25,517			23,449
Depreciation and amortization		4,905			3,553			13,898		9,671		16,017			13,075			30,933			25,290
EBITDA		16,460			3,922			73,451		54,898		63,253			39,813			173,344			140,362
Non-cash stock-based compensation expense		14,227			14,235			31,754		18,857		23,792			21,218			47,373			37,029
Change in fair value of interest rate swap												(49	)		131			(705	)		1,706
Adjusted EBITDA	$	30,687		$	18,157		$	105,205	$	73,755	$	86,996		$	61,162		$	220,012		$	179,097

	Three months ended September 30,						Nine months ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016			2021			2020			2021			2020
Net income to non-GAAP net income:
Net income	$	14,067		$	6,198		$	53,902		$	35,207		$	52,278		$	28,589		$	116,894		$	91,604
Non-cash stock-based compensation expense		14,227			14,235			31,754			18,857			23,792			21,218			47,373			37,029
Income tax effect on non-GAAP adjustment		(11,296	)		(11,472	)		(25,775	)		(13,234	)
Change in fair value of interest rate swap														(49	)		131			(705	)		1,706
Income tax effect on non-GAAP adjustments														(19,539	)		(13,997	)		(21,172	)		(16,470	)
Non-GAAP net income	$	16,998		$	8,961		$	59,881		$	40,830		$	56,482		$	35,941		$	142,390		$	113,869

Weighted average shares outstanding:
Basic		58,003,222			57,819,734			57,751,204			57,515,846			57,853			57,568			57,797			57,611
Diluted		58,873,502			58,907,281			58,839,771			58,793,479			58,092			58,237			58,135			58,363

Earnings per share basic	$	0.24		$	0.11		$	0.93		$	0.61
Earnings per share diluted	$	0.24		$	0.10		$	0.91		$	0.59
Earnings per share, basic													$	0.90		$	0.50		$	2.02		$	1.59
Earnings per share, diluted													$	0.90		$	0.49		$	2.01		$	1.57
Non-GAAP net income per share, basic	$	0.29		$	0.15		$	1.04		$	0.71		$	0.98		$	0.62		$	2.46		$	1.98
Non-GAAP net income per share, diluted	$	0.29		$	0.15		$	1.02		$	0.69		$	0.97		$	0.62		$	2.45		$	1.95

													Three Months Ended June 30,						Six Months Ended June 30,
													2021			2020			2021			2020
Earnings per share to non-GAAP net income per share, basic:
Earnings per share, basic													$	0.90		$	0.50		$	2.02		$	1.59
Non-cash stock-based compensation expense														0.41			0.37			0.82			0.64
Change in fair value of interest rate swap														—			—			(0.01	)		0.03
Income tax effect on non-GAAP adjustments														(0.33	)		(0.25	)		(0.37	)		(0.28	)
Non-GAAP net income per share, basic													$	0.98		$	0.62		$	2.46		$	1.98

	Three months ended September 30,						Nine months ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016			2021			2020			2021			2020
Earnings per share to non-GAAP net income per share, diluted:
Earnings per share, diluted	$	0.24		$	0.10		$	0.91		$	0.59		$	0.90		$	0.49		$	2.01		$	1.57
Non-cash stock-based compensation expense		0.24			0.24			0.54			0.32			0.41			0.36			0.81			0.63
Income tax effect on non-GAAP adjustment		(0.19	)		(0.19	)		(0.43	)		(0.22	)
Change in fair value of interest rate swap														—			—			(0.01	)		0.03
Income tax effect on non-GAAP adjustments														(0.34	)		(0.23	)		(0.36	)		(0.28	)
Non-GAAP net income per share, diluted	$	0.29		$	0.15		$	1.02		$	0.69		$	0.97		$	0.62		$	2.45		$	1.95

Item 3. ~~Quantitative~~Quantitative and Qualitative Disclosures About Market Risk

We had cash and cash equivalents totaling ~~$66.6~~$202.4 million as of ~~September~~June 30, ~~2017.~~2021. These amounts are invested primarily in demand deposit accounts and money market funds. We consider all highly liquid debt instruments purchased with a maturity of three months or less and SEC-registered money market mutual funds to be cash equivalents. ~~These amounts are invested primarily in demand deposit accounts, money market funds and certificates of deposit.~~ The primary objectives of our investing activities are capital preservation, meeting our liquidity needs and, with respect to investing client funds, generating interest income while maintaining the safety of principal. We do not enter into investments for trading or speculative purposes.

Our cash equivalents are subject to market risk due to changes in interest rates. The market value of fixed rate securities may be adversely affected due to a rise in interest rates, while floating rate securities may produce less income than expected if interest rates fall. Due in part to these factors, our future investment income may fall short of ~~expectation~~expectations due to changes in interest rates, or we may suffer losses in principal if we are forced to sell securities that decline in market value due to changes in interest rates.

As described elsewhere in this Form 10-Q, the Term Loans made under the Term Credit Agreement 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 a result, we are exposed to increased interest rate risk. To mitigate the increased interest rate risk, we entered into the Interest Rate Swap Agreement. The Interest Rate Swap Agreement has effectively fixed our interest rate at 4.0%, eliminating a portion of ~~September~~the variable rate and coinciding interest rate risk associated with the Term Loans. As of June 30, ~~2017,~~2021, an increase or decrease in interest rates of 100-basis points would not have had a material effect on our operating results or financial condition.

As described elsewhere in this Form 10-Q, the Revolving Credit Agreement, as amended, provides for a Facility in the aggregate amount of $75.0 million, which may be increased to up to $125.0 million. 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%. As of June 30, 2021, we have not made any draws under the Facility. To the extent we make draws under the Facility in the future, we may be exposed to increased interest rate risk.

As required by Rule 13a-15(b) and Rule 15d-15(b) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), our management, including our ~~Chief Executive Officer~~chief executive officer and ~~Chief Financial Officer,~~chief financial officer, evaluated, as of ~~September~~June 30, ~~2017,~~2021, the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Exchange Act. Based on that evaluation, our ~~Chief Executive Officer~~chief executive officer and ~~Chief Financial Officer~~chief financial officer concluded that our disclosure controls and procedures were effective as of ~~September~~June 30, ~~2017~~2021 to ensure that information required to be disclosed by us in this ~~report~~Form 10-Q is recorded, processed, summarized and reported within the time periods specified by the rules and forms of the Exchange Act and is accumulated and communicated to our management, including our ~~Chief Executive Officer~~chief executive officer and ~~Chief Financial Officer,~~chief financial officer, as appropriate to allow timely decisions regarding required disclosures.

We believe, however, that a controls system, no matter how well designed and operated, ~~cannot~~can only provide ~~absolute~~reasonable assurance that the objectives of the controls systems are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud or error, if any, within a company have been detected.

There have been no material changes in our internal control over financial reporting that occurred during the quarter ended
~~September~~ June 30, ~~2017~~2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

WeOn April 22, 2020, Paycom Payroll, LLC (“Payroll”), a wholly owned subsidiary of the Company, filed a petition against the Oklahoma Council for Public Affairs, Inc. (the “OCPA”), Paycom Payroll, LLC v. Oklahoma Council for Public Affairs, Inc., Okla. Cty. Dist. Ct., Case No. CJ-2020-1950 and Appeal Case No. DF-119344, seeking monetary damages for defamation and tortious interference with contract in connection with the OCPA’s dissemination of false statements about Payroll. The OCPA filed two motions to dismiss, seeking dismissal of the lawsuit with prejudice under the Oklahoma Citizens’ Participation Act and also seeking the OCPA’s attorneys’ fees and costs, and sanctions. On December 30, 2020, the Court filed its Order dismissing of all of Payroll’s claims on grounds that Payroll failed to sufficiently establish proof of malice and or special damages. On January 29, 2021, Payroll appealed the trial court’s December 30, 2020 ruling and the appeal remains pending in the Supreme Court of the State of Oklahoma. Payroll anticipates that it will incur attorneys’ fees and sanctions liability if the trial court’s December 30, 2020 ruling is not reversed by an appellate court. The OCPA has filed motions to assess attorneys’ fees and sanctions that may be heard and decided by the trial court prior to a ruling on the appeal. Any amount of attorneys’ fees and costs, and sanctions awarded by the trial court would be subject to the pending appeal and cannot reasonably be estimated at this time.

From time to time, we are involved in various disputes, claims, suits, investigations and legal proceedings arising in the ordinary course of business. ~~Although~~We believe that the resolution of current pending legal matters will not have a material adverse effect on our business, financial condition, results of operations or cash flows. Nonetheless, we cannot predict the outcome of these proceedings, as 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 or cash flows.

There have been no material changes from the information set forth in “Item 1A. Risk Factors” in the Form 10-K filed with the SEC on February ~~21, 2017.~~ 18, 2021.

The number of shares of common stock repurchased by us during the three months ended June 30, 2021 is set forth below.

The following exhibits are incorporated herein by reference or are filed with this Quarterly Report on Form 10-Q, in each case as indicated therein (numbered in accordance with Item 601 of Regulation S-K):

Pursuant to the requirements of the Securities Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Large accelerated filer ☒		Accelerated filer	☐

Non-accelerated filer ☐	~~(Do not check if a smaller reporting company)~~	Smaller reporting company	☐

	PART I – FINANCIAL INFORMATION
Item 1.	Financial Statements ~~(Unaudited)~~	3
	Unaudited Consolidated Balance Sheets ~~as of September 30, 2017 and December 31, 2016~~	3
	Unaudited Consolidated Statements of Income ~~for the Three and Nine Months Ended September 30, 2017 and 2016~~	4
	Unaudited Consolidated Statements of ~~Cash Flows for the Nine Months Ended September 30, 2017 and 2016~~Stockholders’ Equity	5
	~~Notes to the~~Unaudited Consolidated ~~Financial~~ Statements of Cash Flows	6
	Notes to the Unaudited Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1519
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2430
Item 4.	Controls and Procedures	2430
	PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	2531
Item 1A.	Risk Factors	2531
Item 2.	Unregistered ~~Sale~~Sales of Equity Securities and Use of Proceeds	2531
Item 6.	Exhibits	2632
Signatures		2833

	Six Months Ended June 30,
	2021		2020
Reconciliation of cash, cash equivalents, restricted cash and restricted cash equivalents
Cash and cash equivalents	$	202,362	$	113,518
Restricted cash included in funds held for clients		1,858,208		740,435
Total cash, cash equivalents, restricted cash and restricted cash equivalents, end of period	$	2,060,570	$	853,953


Supplemental disclosures of cash flow information:
Non-cash investing and financing activities:
Purchases of property and equipment, accrued but not paid	$	7,131	$	4,832
Stock-based compensation for capitalized software	$	3,351	$	3,718
Right of use assets obtained in exchange for operating lease liabilities	$	1,572	$	5,124

	Three Months Ended June 30,						Six Months Ended June 30,
	2021			2020			2021			2020
Balance, beginning of period	$	88,993		$	78,455		$	86,826		$	76,244
Deferral of revenue		8,536			6,601			15,498			12,486
Recognition of unearned revenue		(5,071	)		(4,169	)		(9,866	)		(7,843	)
Balance, end of period	$	92,458		$	80,887		$	92,458		$	80,887

	As of and for the Three Months Ended June 30, 2021
	Beginning		Capitalization					Ending
	Balance		of Costs		Amortization			Balance
Costs to obtain a contract	$	244,339	$	13,701	$	(9,132	)	$	248,908
Costs to fulfill a contract	$	214,969	$	21,934	$	(7,391	)	$	229,512

	As of and for the Three Months Ended June 30, 2020
	Beginning		Capitalization					Ending
	Balance		of Costs		Amortization			Balance
Costs to obtain a contract	$	208,960	$	7,982	$	(7,480	)	$	209,462
Costs to fulfill a contract	$	158,321	$	19,071	$	(5,451	)	$	171,941

	As of and for the Six Months Ended June 30, 2021
	Beginning		Capitalization					Ending
	Balance		of Costs		Amortization			Balance
Costs to obtain a contract	$	232,583	$	34,242	$	(17,917	)	$	248,908
Costs to fulfill a contract	$	199,593	$	44,112	$	(14,193	)	$	229,512

	As of and for the Six Months Ended June 30, 2020
	Beginning		Capitalization					Ending
	Balance		of Costs		Amortization			Balance
Costs to obtain a contract	$	194,964	$	29,166	$	(14,668	)	$	209,462
Costs to fulfill a contract	$	143,788	$	38,580	$	(10,427	)	$	171,941

	December 31, 2016
	Weighted Average Remaining			Accumulated
	Useful Life	Gross		Amortization			Net
	(Years)
Intangibles:
Customer relationships	0.5	$	13,997	$	(13,297	)	$	700
Trade name	5.5		3,194		(2,023	)		1,171
Total		$	17,191	$	(15,320	)	$	1,871

	September 30, 2017			December 31, 2016
Net term note to bank due May 30, 2021	$	24,245		$	24,950
Net term note to bank due August 31, 2023		4,784			4,874
Construction loan		5,341			—
Total long-term debt (including current portion)		34,370			29,824
Less: Current portion		(1,152	)		(1,113	)
Total long-term debt, net	$	33,218		$	28,711

	June 30, 2021			December 31, 2020
Net term note to bank due September 7, 2025	$	30,025		$	30,894
Total long-term debt, net (including current portion)		30,025			30,894
Less: Current portion		(1,775	)		(1,775	)
Total long-term debt, net	$	28,250		$	29,119

	June 30, 2021
	Level 1		Level 2		Level 3		Total
Assets:
Commercial paper	$	—	$	142,164	$	—	$	142,164
Certificates of deposit	$	—	$	25,000	$	—	$	25,000
Liabilities:
Interest rate swap	$	—	$	2,033	$	—	$	2,033

	December 31, 2020
	Level 1		Level 2		Level 3		Total
Assets:
Commercial paper	$	—	$	99,929	$	—	$	99,929
Certificates of deposit	$	—	$	80,000	$	—	$	80,000
Liabilities:
Interest rate swap	$	—	$	2,738	$	—	$	2,738

	Time-Based					Market-Based
	Restricted Stock Awards					Restricted Stock Awards
	Shares			Weighted Average Grant Date Fair Value		Shares			Weighted Average Grant Date Fair Value
Unvested shares of restricted stock outstanding at December 31, 2016		1,429,514		$	20.56		738,425		$	28.68
Granted		309,526		$	60.00		314,021		$	48.63
Vested		(624,710	)	$	6.85		(875,939	)	$	32.49
Forfeited		(86,413	)	$	38.71		(23,811	)	$	35.75
Unvested shares of restricted stock outstanding at September 30, 2017		1,027,917		$	39.24		152,696		$	46.76

Vesting Condition	Date Vested	Number of Shares Vested		Compensation Cost Recognized Upon Vesting	Shares Withheld for Taxes¹
Market-based (TEV = $3.5 billion)	May 13, 2017		229,075	$2.9 million		91,274
Market-based (TEV = $3.9 billion)	June 20, 2017		248,250	$5.2 million		103,907
Market-based (TEV = $4.15 billion)	August 25, 2017		153,764	$5.5 million		65,309
Market-based (TEV = $4.2 billion)	September 7, 2017		244,850	$4.2 million		102,548

	PSUs
	Units			Weighted Average Grant Date Fair Value
Unvested PSUs outstanding at December 31, 2020		—		$	—
Granted		57.9		$	564.68
Forfeited		(20.8	)	$	579.30
Unvested PSUs outstanding at June 30, 2021 ⁽¹⁾		37.1		$	556.50

	Restricted Stock
	Awards		PSUs
Unrecognized compensation cost	$	260,538	$	17,683
Weighted average period for recognition (years)		3.9		2.3

	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs ⁽¹⁾		Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs ⁽¹⁾
July 1 - 31, 2017⁽²⁾		11,909	$	67.64		11,909	$	19,000,000
August 1 - 31, 2017⁽³⁾		125,449	$	71.39		125,449	$	10,000,000
September 1 - 30, 2017⁽²⁾		102,548	$	73.86		102,548	$	2,500,000
Total		239,906				239,906

Exhibit No.		Description

3.1		Amended and Restated Certificate of Incorporation of Paycom Software, Inc. (incorporated by reference to Exhibit 3.1 to the Company’s Amendment No. 1 to the Registration Statement on Form S-1/A dated March 31, 2014, filed with the SEC on March 31, 2014).~~http://www.sec.gov/Archives/edgar/data/1590955/000119312514122537/d609623dex31.htm~~

3.2		Amended and Restated Bylaws of Paycom Software, Inc. (incorporated by reference to Exhibit ~~3.2~~3.1 to the Company’s ~~Quarterly~~Current Report on Form ~~10-Q for the quarter ended September 30, 2015,~~8-K dated June 5, 2020, filed with the SEC on ~~November 6, 2015)~~June 8, 2020).~~https://www.sec.gov/Archives/edgar/data/1590955/000156459015009936/payc-ex32_560.htm~~

4.1		Form of Common Stock Certificate (incorporated by reference to Exhibit 4.1 to the Company’s Amendment No. 1 to the Registration Statement on Form S-1/A dated March 31, 2014, filed with the SEC on March 31, 2014).~~http://www.sec.gov/Archives/edgar/data/1590955/000119312514122537/d609623dex41.htm~~

~~4.2~~10.1+		~~Registration Rights Agreement (incorporated by reference to Exhibit 4.3 to the Company’s Registration Statement on Form S-1 dated March 10, 2014, filed with the SEC on March 10, 2014).~~ ~~http://www.sec.gov/Archives/edgar/data/1590955/000119312514091543/d609623dex43.htm~~

~~4.3~~		Joinder to Registration Rights Agreement, by and among Paycom Software, Inc. and each of the signatories thereto, dated as of March 6, 2015 (incorporated by reference to Exhibit 4.6 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015, filed with the SEC on May 13, 2015). ~~http://www.sec.gov/Archives/edgar/data/1590955/000156459015004189/payc-ex46_20150331350.htm~~

~~4.4~~		Amendment No. 1 to the Registration Rights Agreement, by and among Paycom Software, Inc. and each of the signatories thereto, dated as of May 13, 2015 (incorporated by reference to Exhibit 4.7 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2015, filed with the SEC on August 7, 2015). ~~http://www.sec.gov/Archives/edgar/data/1590955/000156459015006677/payc-ex47_102.htm~~

~~4.5~~		~~Joinder to Registration Rights~~Letter Agreement, by and between Paycom Software, Inc. and ~~the Mackesy Family Foundation,~~Jeffrey D. York, dated ~~as of May 27, 2015~~April 2, 2021 (incorporated by reference to Exhibit ~~4.9~~10.1 to the Company’s ~~Quarterly~~Current Report on Form ~~10-Q for the quarter ended September 30, 2015,~~8-K dated April 2, 2021, filed with the SEC on ~~November 6, 2015)~~April 7, 2021).~~http://www.sec.gov/Archives/edgar/data/1590955/000156459015009936/payc-ex49_182.htm~~

~~4.6~~		Joinder to Registration Rights Agreement, by and between Paycom Software, Inc. and Anthony & Christie de Nicola Foundation, dated as of August 13, 2015 (incorporated by reference to Exhibit 4.11 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2015, filed with the SEC on November 6, 2015). ~~http://www.sec.gov/Archives/edgar/data/1590955/000156459015009936/payc-ex411_400.htm~~

~~4.7~~		Amendment No. 2 to Registration Rights Agreement, by and between Paycom Software, Inc. and each of the signatories thereto, dated as of September 15, 2015 (incorporated by reference to Exhibit 4.12 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2015, filed with the SEC on November 6, 2015). ~~http://www.sec.gov/Archives/edgar/data/1590955/000156459015009936/payc-ex412_177.htm~~

~~4.8~~		Joinder to Registration Rights Agreement, by and between Paycom Software, Inc. and The Swani Family Foundation, dated as of October 13, 2015 (incorporated by reference to Exhibit 4.14 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2015, filed with the SEC on November 6, 2015). ~~http://www.sec.gov/Archives/edgar/data/1590955/000156459015009936/payc-ex414_179.htm~~

~~4.9~~		Joinder to Registration Rights Agreement, by and between Paycom Software, Inc. and Paul & Anne-Marie Queally Family Foundation, dated as of October 13, 2015 (incorporated by reference to Exhibit 4.16 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2015, filed with the SEC on November 6, 2015). ~~http://www.sec.gov/Archives/edgar/data/1590955/000156459015009936/payc-ex416_183.htm~~

~~4.10~~		Joinder to Registration Rights Agreement, by and between Paycom Software, Inc. and Scully Family Charitable Foundation, dated as of December 2, 2015 (incorporated by reference to Exhibit 4.18 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2015, filed with the SEC on February 22, 2016.) ~~http://www.sec.gov/Archives/edgar/data/1590955/000156459016013001/payc-ex418_608.htm~~

~~Exhibit No.~~		~~Description~~


31.1*		Certification of the Chief Executive Officer of the Company, pursuant to ~~the~~ Section 302 of the Sarbanes-Oxley Act of 2002.~~payc-ex311_7.htm~~

31.2*		Certification of the Chief Financial Officer of the Company, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.~~payc-ex312_6.htm~~

32.1**		Certification of the Chief Executive Officer and Chief Financial Officer of the Company, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.~~payc-ex321_8.htm~~

101.INS*
101.INS		Inline XBRL Instance ~~Document.~~Document – the XBRL Instance Document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH*		Inline XBRL Taxonomy Extension Schema ~~Document~~Document.

101.CAL*		Inline XBRL Taxonomy Extension Calculation Linkbase ~~Document~~Document.

101.DEF*		Inline XBRL Taxonomy Extension Definition Linkbase ~~Document~~Document.

101.LAB*		Inline XBRL Taxonomy Extension Label Linkbase ~~Document~~Document.

101.PRE*		Inline XBRL Taxonomy Extension Presentation Linkbase ~~Document~~Document.
104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).


		PAYCOM SOFTWARE, INC.

Date: ~~November 2, 2017~~August 5, 2021	By:	/s/ Chad Richison
		Chad Richison
		President and Chief Executive Officer
		(Principal Executive Officer)

Date: ~~November 2, 2017~~August 5, 2021	By:	/s/ Craig E. Boelte
		Craig E. Boelte
		Chief Financial Officer
		(Principal Accounting Officer and Principal Financial Officer)