Craig E. Boelte
Chief Financial Officer, Treasurer and Corporate Secretary at Paycom Software
Thanks, Chad. Before I review our third quarter and our outlook for the fourth quarter and full year 2022, I would like to remind everyone that my comments related to certain financial measures will be on a non-GAAP basis. Third quarter 2022 results were very strong, with total revenues of $334.2 million, representing growth of 30% over the comparable prior year period. Our revenue growth is being fueled by strong demand for our differentiated solution and strong new business wins.
Within total revenues, recurring revenue was $328.2 million for the third quarter, representing 98% of total revenues and growing 31% from the comparable prior year period. Total adjusted gross profit for the third quarter was $280.5 million, representing an adjusted gross margin of 83.9%. Our focus on high-quality revenue produces world-class margins, and we remain on target to achieve strong full year adjusted gross margins of approximately 85%. Adjusted sales and marketing expense for the third quarter of 2022 was $85.8 million or 25.7% of revenues compared to 25.9% of revenues in the prior year period. Adjusted R&D expense was $37.3 million in the third quarter of 2022 or 11.2% of total revenues. Adjusted total R&D costs, including the capitalized portion, were $52 million in the third quarter compared to $40.7 million in the prior year period. Our investments in sales and marketing and innovation are fueling our market share gains, and we plan to continue to invest in these areas to drive our future growth.
Adjusted EBITDA was $126 million in the third quarter of 2022 or 37.7% of total revenues compared to $89.7 million in the prior year or 35% of total revenues. I am pleased with the 270 basis points of year-over-year adjusted EBITDA margin expansion that we saw in the quarter, which reflects the strength of our business model and flow-through of high-margin revenue upside. GAAP net income for the third quarter was $52.2 million or $0.90 per diluted share versus $30.4 million or $0.52 per diluted share in the prior year period based on approximately 58 million shares. Non-GAAP net income for the third quarter of 2022 was $73.4 million or $1.27 per diluted share versus $53.6 million or $0.92 per diluted share in the prior year period. For 2022, we anticipate our full year effective income tax rate to be approximately 28% on a GAAP basis.
Turning to the balance sheet. We ended the quarter with cash and cash equivalents of approximately $317 million and total debt of $29 million. The average daily balance of funds held on behalf of clients was approximately $1.85 billion in the third quarter of 2022. Now let me turn to guidance. With our very strong third quarter and the strength of our recurring revenue model, we are raising our full year 2022 guidance. We now expect revenue in the range of $1.371 billion to $1.373 billion or 30% year-over-year growth at the midpoint of the range. We expect adjusted EBITDA in the range of $560 million to $562 million, representing adjusted EBITDA margin of 41% at the midpoint of the range and a 120 basis point expansion from the prior year.
For the fourth quarter of 2022, we expect total revenues in the range of $366 million to $368 million, representing a growth rate over the comparable prior year period of approximately 29% at the midpoint of the range. We expect adjusted EBITDA for the fourth quarter in the range of $144 million to $146 million, representing an adjusted EBITDA margin of roughly 40% at the midpoint of the range. Combining our 2022 guidance for revenue growth with adjusted EBITDA margin, we are now expecting to exceed the Rule of 70, which is at least five points greater than the Rule of 65 we achieved in 2021. We have a long runway for continued high-margin revenue growth. Our fundamentals continue to improve throughout 2022, and we have strong momentum heading into 2023.
With that, we will open the line for questions. Operator?