Paycom Software Inc. (NYSE:PAYC)

Inventory Turnover

The inventory turnover ratio demonstrates a generally increasing trend from 2018 through 2023, despite some fluctuations. Starting around 114 in early 2018, it rises significantly to exceed 300 by the third quarter of 2023. This suggests an improvement in inventory management efficiency, with inventory being sold and replaced more frequently over time.

Receivables Turnover

Receivables turnover shows considerable variability across the periods, with an initial high above 165 in 2018, peaking in late 2018 and early 2019, but declining sharply during 2020. After the low points in 2020 and parts of 2022, there is a recovery trend observed in late 2022 and throughout 2023, reaching values above 100. The fluctuations may indicate changes in credit policies or customer payment behaviors over the years.

Payables Turnover

The payables turnover ratio exhibits considerable fluctuations, with notable volatility between quarters. It peaks at 37.84 in the third quarter of 2023, from lower values in the earlier years, suggesting periods of faster payables clearance intermittently. The general pattern shows no clear upward or downward trajectory but reflects dynamic management of payables.

Working Capital Turnover

Working capital turnover declines steadily over the observed time frame. Beginning around 15.76 in 2018, it decreases sharply to around 3 by 2023. This indicates that the company is generating lower sales per unit of working capital over time, which could reflect changes in operational efficiency or shifts in the working capital structure.

Average Inventory Processing Period

The average inventory processing period remains relatively stable at about 2 to 4 days throughout the quarters. Notably, there is a slight reduction to a single day in 2023, suggesting accelerated inventory movement in recent periods.

Average Receivable Collection Period

This period shows moderate variability. Initially low at 1 to 2 days pre-2019, the collection period increases during 2019 and 2021, reaching up to 8 days but decreases again in 2022 and 2023 to approximately 3 to 6 days. These shifts imply fluctuations in receivables management or customer payment behavior over time.

Operating Cycle

The operating cycle, combining inventory and receivables periods, generally fluctuates between 3 and 11 days with no sustained trend upward or downward. This indicates consistent overall efficiency in the company's operations relative to these components, with short operating cycles typical of quick turnover businesses.

Average Payables Payment Period

The average payables payment period exhibits significant variability, ranging between approximately 10 and 34 days. The period tends to peak around 2020 and 2021 at over 30 days, while more recently in 2023, it has decreased to around 10 days, suggesting faster settlement of payables during this latest timeframe.

Cash Conversion Cycle

The cash conversion cycle remains negative throughout the periods, ranging from approximately -4 to -23 days. The negative cycle indicates that the company collects cash from customers before settling its payables, which is generally a positive liquidity indicator. The cash conversion cycle appears to improve in magnitude (i.e., become more negative) during 2019 and 2020, reflecting strong operating cash flow conditions, but shows a slight reduction in negativity by 2023, suggesting a moderation in this favorable condition.

The financial data reveals notable trends in the cost of revenues, inventory levels, and inventory turnover ratios over the examined periods.

Cost of Revenues

The cost of revenues has exhibited a general upward trend from March 31, 2018, to September 30, 2023. Starting at approximately $23.6 million, it increased steadily with some fluctuations, reaching nearly $68.9 million by the latest date. This consistent growth indicates expanding operational activities or rising expenses associated with delivering the company’s products or services.

Inventory

Inventory values show variability without a clear linear trend. Initial levels were relatively low, around $420 thousand, with periodic increases and decreases throughout the periods. For example, inventory peaked at $1.6 million in March 2023 but then declined somewhat towards the latest quarters. The fluctuations suggest dynamic inventory management possibly responding to demand changes or supply chain conditions.

Inventory Turnover

The inventory turnover ratio, available from March 31, 2019, onward, shows considerable fluctuation, generally maintaining high values indicative of efficient inventory utilization. The ratio has several peaks, including a significant increase to over 300 times by the latest quarters, pointing to rapid inventory turnover relative to available inventory levels. Such high turnover rates typically imply strong sales efficiency or cautious inventory policies minimizing holding periods.

Overall, the data suggests expanding cost structures aligned with growing operational scale, combined with responsive inventory management reflected in variable inventory levels and consistently high turnover ratios. The interplay between rising costs of revenues and efficient inventory turnover may reflect strategic adjustments to optimize resource deployment amid changing business conditions.

Revenues

Revenues exhibit a general upward trend from the first quarter of 2018 through the third quarter of 2023. Initial fluctuations between quarters in 2018 showed modest variability, with values ranging from approximately $128.8 million to $153.9 million. Starting in 2019, quarterly revenues increased, peaking notably in the first quarter of 2020 at $242.4 million. A pronounced decline occurred in the second quarter of 2020, likely influenced by external factors affecting operations, with revenues dropping to $181.6 million. Revenues recovered in subsequent quarters, experiencing continual growth through 2021 and 2022, reaching new highs in each year’s first quarters. The first quarter of 2023 reported the highest revenue of the series at approximately $451.6 million, nearly doubling the figure from the same quarter in 2020. Some volatility is visible within 2023, with slight declines in the subsequent quarters to around $401.1 million and $406.3 million, yet revenues remain at historically elevated levels.

Accounts Receivable

Accounts receivable values show significant variability over the analyzed period. Initial amounts remained relatively stable in 2018, fluctuating between $2.2 million and $3.4 million. In 2019, the balance generally increased, with a conspicuous spike in the fourth quarter to $9.3 million. During 2020, accounts receivable varied between roughly $9.1 million and $12.4 million, indicating increased amounts outstanding. A notable increase occurred in early 2021, peaking at nearly $19.8 million in the first and second quarters, followed by a sharp decline later in the year down to $9.5 million in the fourth quarter. The trend continued with fluctuations throughout 2022 and 2023, ranging from about $14.9 million to $22.8 million, then decreasing toward the later quarters of 2023 to around $15.5 million. The data suggests oscillations in collection efficiency or billing cycles, with periods of higher receivables possibly linked to increased sales or extended customer payment terms.

Receivables Turnover Ratio

The receivables turnover ratio, available intermittently from 2019 onwards, illustrates significant volatility. Early 2019 quarters report ratios exceeding 165, indicating rapid collection relative to accounts receivable balances. This high efficiency waned in the latter part of 2019 and into 2020, with the ratio decreasing substantially to a low of approximately 65.9 in the fourth quarter of 2020. In 2021, the ratio fluctuated significantly, dropping as low as 44.0 in the second quarter before rising above 76.2 by the year's end, reflecting variability in how quickly receivables are converted to cash. The ratios in 2022 and 2023 remain generally lower than early 2019 levels but show a renewed upward movement toward the latter part of the period, rising from about 60.2 in the first quarter of 2023 to over 104.8 in the third quarter. These movements suggest changing efficiency in collections and could mirror variations in credit policies or customer payment behavior.

Cost of Revenues

The cost of revenues shows a general upward trend throughout the observed periods, increasing from approximately 23.6 million USD in March 2018 to nearly 69 million USD by September 2023. While there are minor fluctuations quarter to quarter, the overall growth trajectory is evident, especially marked by more pronounced increases from 2020 onward. This steady rise suggests expansion or scaling of operations leading to higher costs associated with generating revenue.

Accounts Payable

Accounts payable figures reveal significant volatility across the quarters. Initial values fluctuate in the lower single-digit thousands, with a notable peak in September 2020 (over 9.2 million USD) followed by another peak in March 2022 (approximately 12.2 million USD). Despite these spikes, there is no clear long-term upward or downward trend; rather, the data portrays irregular swings that may indicate variability in payment cycles, supplier terms, or operational dynamics affecting liabilities.

Payables Turnover

Payables turnover ratios display considerable variability over the periods with no stable trend. Ratios range from as low as around 10.7 to highs exceeding 37. The metric appears to fluctuate widely quarter by quarter, reflecting inconsistent efficiency or timing in the payment process relative to cost of revenues. Higher ratios suggest faster payment to suppliers, while lower ratios indicate slower turnover. The fluctuations might be tied to changes in working capital management or operational conditions.

Overall Summary

The financial data reflects an expanding business scale as evidenced by the rising cost of revenues. However, the management of payables shows irregular patterns, with significant swings in both accounts payable amounts and turnover ratios. This may point to varying supplier payment strategies or operational adjustments over time. The absence of a consistent trend in payables turnover coupled with sharp fluctuations in accounts payable suggests potential areas for closer cash flow and working capital management review.

Working Capital

Working capital exhibited an upward trend over the entire period, starting around 63.7 million US dollars in the first quarter of 2018 and reaching highs of approximately 489.6 million US dollars by the first quarter of 2023. Despite some fluctuations, the overall direction was positive, with particularly notable increases occurring from 2020 onward. There were occasional declines, such as in the mid-2022 quarters, but these were temporary and followed by recoveries.

Revenues

Revenues displayed a generally increasing trajectory from roughly 154 million US dollars in the first quarter of 2018 to over 451 million by the first quarter of 2023. While there were periodic dips, such as in the second quarter of 2020 and some quarters in 2022 and 2023, the longer-term trend indicates consistent growth. The revenue jumps are especially pronounced in the years following 2019, coinciding with global economic changes and possibly increased demand for the company's offerings.

Working Capital Turnover Ratio

The working capital turnover ratio showed a decreasing trend over the observed periods. Early data in 2018 are missing, but starting from the first available quarter in 2019, the ratio declined from around 15.76 to approximately 3.31 by the third quarter of 2023. This reduction suggests that despite rising revenues and working capital, the efficiency in generating sales from working capital has diminished. The steady decline implies that the working capital base has grown faster than revenues, reducing turnover efficiency.

Combined Insights

The data indicate that while revenues and working capital increased significantly over the years, the declining turnover ratio highlights a shift in asset utilization efficiency. The company appears to be maintaining larger working capital reserves or investments relative to sales growth, which could reflect strategic positioning or operational changes. Careful monitoring of this trend is warranted to ensure working capital growth continues to generate proportionate revenue gains and to optimize capital allocation.

The inventory turnover ratio exhibits a generally upward trend over the analyzed periods. Starting in the first reported quarter of March 31, 2018, the ratio shows fluctuations but primarily increases from a low in the earlier quarters to peak values towards the latest periods. Notably, there are pronounced increases in turnover during the 2022 and 2023 quarters, reaching a high of 311.81 by the third quarter of 2023. This pattern suggests a significant improvement in the efficiency with which inventory is being managed and sold over time.

The average inventory processing period, measured in number of days, remains relatively stable across the quarters, fluctuating mostly between two and four days. There is a tendency towards shorter processing periods in the most recent quarters, especially notable in 2023, where it declines to just one day per inventory cycle. This reduction corroborates the increasing inventory turnover ratio and further indicates an acceleration in inventory movement and possibly more effective inventory management practices.

Inventory Turnover

Displays a positive trend overall, rising from values around the low hundreds to over 300 in late 2023.

Periods of volatility exist, but the trajectory is clearly upward, suggesting improving operational efficiency.

Highest ratios are observed in 2023, indicating faster inventory turnover compared to previous years.

Average Inventory Processing Period

Remains consistently low, mainly between two and four days throughout the reporting periods.

Recent quarters show a reduction to one day, implying quicker turnover and potentially leaner inventory levels.

Stable and low processing periods align with rising turnover ratios, emphasizing enhanced inventory management.

Receivables Turnover Ratio

The receivables turnover ratio shows significant fluctuations over the observed periods. Starting with relatively high values around 165.89 to 266.23 during 2018 and 2019, the ratio sharply declined in early 2020 to 79.34. It continued to experience variability throughout 2020 and 2021, reaching a low point of 44.02 in mid-2021. After this trough, the turnover ratio displayed a gradual recovery trend, increasing up to 104.82 by late 2023. This indicates variability in operational efficiency related to collections but suggests an improving ability to collect receivables in the most recent quarters.

Average Receivable Collection Period

The average collection period, expressed in days, inversely correlates with the turnover ratio. From a low collection period of 1 to 2 days in late 2018 and early 2019, the number of days to collect receivables increased notably in 2020, peaking at 6 to 8 days. The highest values appeared in mid-2021, where the collection period extended to 8 days. Post mid-2021, there is a clear trend toward reduced collection days, decreasing to as low as 3 to 4 days by late 2023. This reduction in collection days implies enhanced efficiency in collecting receivables in recent periods.

Overall Analysis

The data reflects periods of volatility in the company’s receivables management, especially around 2020 through mid-2021, possibly influenced by market or operational challenges. However, the recent trend from mid-2021 onward shows an improvement in both receivables turnover and collection period metrics. The receivables turnover ratio is strengthening, and the collection period is shortening, suggesting more effective receivables management and cash flow optimization in the latest quarters.

Average Inventory Processing Period

The average inventory processing period remained stable at around 3 days from March 2019 through mid-2023. There was a slight decrease to 2 days toward the end of 2019 and again in late 2021, but the value mostly hovered between 2 and 4 days. A notable improvement is seen in the final three quarters, where the period dropped to 1 day, indicating more efficient inventory management or faster turnover during this latest time frame.

Average Receivable Collection Period

The receivable collection period exhibited more variation across the quarters. Initially, it stayed low around 1 to 2 days until late 2019, indicating rapid collection of receivables. However, a marked increase occurred in 2020 and 2021, peaking at 8 days in mid and late 2021. Since then, the collection period has gradually decreased, reaching down to 3 to 4 days by the most recent quarters in 2023, which suggests improvement but still higher than the early periods.

Operating Cycle

The operating cycle mirrored the patterns seen in the processing and collection periods. It was relatively short and consistent around 3 to 5 days through 2019, increased to a peak of 11 days in early 2021 during a period of longer receivable collection, then gradually declined again to 4 to 5 days in the latest quarters of 2023. This indicates that while the company experienced some delays in its operating processes around 2020 and 2021, efficiency was restored by 2023.

Payables Turnover Ratio

The payables turnover ratio exhibits a generally volatile pattern over the observed periods. Starting from a value of 14.43 in March 2019, it increased significantly to a peak of 31.3 by September 2020, reflecting an accelerated rate at which the company is paying off its creditors. However, this was followed by a notable decline to 10.7 in June 2021, indicating a slower turnover. Subsequent quarters saw some fluctuations, but a trend of increasing turnover is evident again toward the latest quarter ending September 2023, where the ratio reaches the highest recorded value of 37.84. This increasing trend suggests a potentially more aggressive payables management or improved cash flow position in recent periods.

Average Payables Payment Period (Number of Days)

The average number of days to pay suppliers demonstrates an inverse relationship to the payables turnover ratio, as expected. Initially, in early 2019, the payment period was relatively short, averaging around 13 to 17 days. This period extended to a high of 34 days by June 2021, aligning with the corresponding dip in payables turnover. Following that peak, the payment period shortened considerably, reaching a low of 10 days in the most recent period of September 2023. The fluctuations suggest variability in payment policies or cash management strategies, with the latest data indicating a faster settlement of accounts payable, consistent with the increasing payables turnover ratio.

Overall Trends and Insights

The data reveals a pattern of oscillation in payables management, with periods of both aggressive and more relaxed payment terms. Peaks in payables turnover correspond with troughs in the payment period, highlighting the operational impact of these financial ratios on liquidity and supplier relationships. The recent trend toward higher turnover and shorter payment periods may imply improved operational efficiency or stronger liquidity management, but could also reflect strategic decisions to maintain supplier trust or take advantage of early payment benefits. Continuous monitoring is advisable to assess any potential impacts on cash flow and supplier engagement.

The analysis of the financial cycle metrics over the observed periods reveals several noteworthy trends and patterns. These metrics include the average inventory processing period, average receivable collection period, average payables payment period, and the cash conversion cycle, all measured in number of days.

Average Inventory Processing Period

The inventory processing period remained relatively stable, fluctuating mostly between 1 and 4 days. Starting from March 31, 2019, it was consistently around 2 to 3 days with some minor variation, and it notably decreased to 1 day in the last two quarters of 2023. This suggests a slight improvement in inventory turnover efficiency towards the end of the period.

Average Receivable Collection Period

This metric showed greater variability, initially ranging from 1 to 2 days until the first quarter of 2020, followed by an increase peaking at 8 days in mid-2021. Afterward, the receivable collection period fluctuated between 3 and 6 days, eventually stabilizing at around 3 to 4 days in 2023. This pattern indicates periods of slower collections especially around 2020-2021, with some improvement and tighter control in the most recent quarters.

Average Payables Payment Period

The payables payment period exhibited considerable fluctuations. It started high at 25 days in early 2019, decreased to as low as 12-13 days around late 2019 and mid-2020, then peaked at 34 days in mid-2021. Afterward, the period generally decreased and fluctuated between 10 to 28 days. In the most recent quarters, the payables period contracted further to around 10-16 days, indicating a trend toward faster payments to suppliers.

Cash Conversion Cycle

The cash conversion cycle consistently remained negative throughout the entire timeframe, reflecting that the company typically collected cash from its customers before paying its suppliers. The cycle hovered around negative values from -4 to -23 days. Notably, the most negative values occurred in 2020 and 2021, reaching as low as -23 days, signaling increased efficiency in cash flow management during that period. The cash conversion cycle has slightly increased (moved closer to zero) in recent quarters but still maintained a negative value between -6 and -8 days as of late 2023.

In summary, the data portrays a generally efficient working capital management with quick inventory turnover and a consistently negative cash conversion cycle, indicating strong liquidity and cash flow practices. Despite some volatility in receivable collection and payables payment periods, the company appears to maintain favorable timing in its cash flows, improving notably on inventory processing speed and supplier payments in the latest quarters.