Craig E. Boelte
Chief Financial Officer at Paycom Software
Thanks, Chad. Before I review our second quarter and our outlook for the third quarter and full year 2022, I would like to remind everyone that my comments relating to certain financial measures will be on a non-GAAP basis. Second quarter 2022 results were excellent, with total revenues of $316.9 million representing growth of 31% over the comparable prior year period. In Q2, we had very strong recurring revenue growth, predominantly from new client additions over the past year. Our revenue growth continues to be driven by strong demand for easy to use employee focused solutions and our success in attracting new business wins. Within total revenues, recurring revenue was $311.5 million for the second quarter, representing 98% of total revenues for the quarter and growing 31% from the comparable prior year period. Total adjusted gross profit for the second quarter was $268.2 million, representing an adjusted gross margin of 84.6% and we are on target to achieve strong full year adjusted gross margin of approximately 85%. Adjusted sales and marketing expense for the second quarter of 2022 was $82.7 million or 26.1% of revenues compared to 26.6% of revenues in the prior year period. We continue to see strong return on investment from our advertising spin and plan to continue to invest aggressively in marketing and advertising through the remainder of 2022. Adjusted R&D expense was $33.9 million in the second quarter of 2022 or 10.7% of total revenues.
Adjusted total R&D costs, including the capitalized portion were $48.1 million in the second quarter compared to $38 million in the prior year period. We will continue to invest in innovation in our world class products. Adjusted EBITDA was $119.6 million in the second quarter of 2022 or 37.7% of total revenues compared to $87 million in the prior year or 35.9% of total revenues. Our GAAP net income for the second quarter was $57.4 million, or $0.99 per diluted share, versus $52.3 million or $0.90 per diluted share in the prior year period based on approximately 58 million shares. Non-GAAP net income for the second quarter of 2022 was $73 million or $1.26 per diluted share, versus $56.5 million or $0.97 per diluted share in the prior year period. For 2022, we anticipate our full year effective income tax rate to be approximately 27% on a GAAP basis. Turning to the balance sheet. We ended the quarter with cash and cash equivalents of approximately $279 million and total debt of $29 million. The average daily balance of funds held on behalf of clients was approximately $2 billion in the second quarter of 2022. We recently increased our liquidity through an expanded revolving line of credit of $650 million and a delayed draw term loan that allows us to borrow up to an additional $750 million as needed. Potential uses of proceeds include, but are not limited to general corporate purposes, capital expenditures and stock buybacks. During the second quarter of 2022, we took advantage of a dislocation in the stock market, and repurchased approximately 360,000 shares for a total of roughly $100 million.
Through June 30, 2022, Paycom has repurchased nearly 4.65 million shares since 2016, for total of nearly 588 million, and we currently have 550 million remaining in our buyback program. Now, let me turn to guidance. We are raising our full year 2022 guidance as a result of very strong second quarter financial performance and the continued strength of demand trends. We now expect revenue in the range of $1.354 billion to $1.356 billion or 28% year-over-year growth at the midpoint of the range. We expect adjusted EBITDA in the range of $546 million to $548 million, representing an adjusted EBITDA margin of 40% at the midpoint of the range. For the third quarter of 2022, we expect total revenues in the range of $327 million to $329 million, representing a growth rate over the comparable prior year period of approximately 28% at the midpoint of the range. We expect adjusted EBITDA for the third quarter in the range of $117 million to $119 million representing an adjusted EBITDA margin of 36% at the midpoint of the range. With only 5% share of a growing TAM, we have a long runway for continued high margin revenue growth for years to come. Our differentiated solutions and go-to-market strategy, particularly with Beti are working well and driving new client growth and higher revenue per client. Combining our raised 2022 guidance for revenue growth, with adjusted EBITDA margin guidance, implies we are well on our way to deliver a material improvement over the Rule of 65 we achieved in 2021.
With that, we will open the line for questions. Operator?