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Paycom (PAYC) Q4 Earnings Top Estimates, '19 View Upbeat

Zacks Equity Research

Paycom Software’s PAYC fourth-quarter 2018 non-GAAP earnings per share came in at 61 cents per share, which surpassed the Zacks Consensus Estimate of 56 cents. Adjusted earnings per share in the year-ago period were 90 cents.

Paycom Software generated revenues of $150.3 million, surging 32% from the year-earlier period and also outpaced the Zacks Consensus Estimate of $144 million, driven by new business wins. Robust adoption of enhanced HCM software solutions across industries and geographies is a key catalyst.

Moreover, revenues were positively by a 32% year-over-year increase in recurring revenues, which comprised around 98% of total revenues.

The better-than-expected earnings coupled with a bullish guidance by the management for the first quarter of 2019 and full year are expected to buoy investor confidence in the stock.

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Notably, shares of Paycom have soared 81.3% in the past year, substantially outperforming the industry’s growth of 17.4%.

 

 

Margins

Adjusted gross profit jumped 32.5% from the year-ago period to $126.7 million. The company’s adjusted gross margin expanded 50 basis points (bps) on a year-over-year basis to 84.3%.

As a percentage of revenues, total adjusted administration expenses, sales and marketing expenses plus research and development expenses of 52.1%, 27% and 8.3%, respectively, expanded 580 bps, 180 bps and 210 bps, each.

Paycom Software’s adjusted EBITDA rose 18.7% year over year to $57.5 million.

Balance Sheet & Cash Flow

Paycom Software exited the fourth quarter with cash and cash equivalents of $45.7 million compared with $85 million in the sequential quarter.

The company’s balance sheet comprises long-term debt of $34.4 million compared with $34.8 million sequentially.

Net cash provided by operating activities in the reported quarter was $39 million.

The company repurchased more than 500,000 shares in the quarter under review.

Paycom Software, Inc. Price, Consensus and EPS Surprise

Paycom Software, Inc. Price, Consensus and EPS Surprise | Paycom Software, Inc. Quote

Full-Year Highlights

Paycom Software reported 2018 non-GAAP earnings of $2.67 per share, up from $2.35 in the prior-year quarter. Revenues ascended 31% year over year to $566.3 million.

In 2018, Paycom Software’s recurring revenues contribute to 98% of its total revenues, which summed $557.3 million. Implementation and other revenues accounted for the remaining 2% of total revenues and came in at $9.08 million.

The company increased its annual client retention rate to 92% after posting the same at 91% over the last six consecutive years.

Paycom Software generated $184.8 million of cash from operating activities in 2018, up from $130.6 million generated in 2017.

During 2018, the company repurchased nearly 1 million shares including more than 900,000 shares purchased in the open market.

Guidance

For first-quarter 2019, Paycom Software expects revenues in the range of $194-$196 million, higher than the current Zacks Consensus Estimate of $191.5 million.

Adjusted EBITDA is expected to be in the band of $97-$99 million.

Paycom Software provided forecasts for the full year. The company envisions revenues within $710-$712 million, which is again above the current Zacks Consensus Estimate of $696.3 million.

Adjusted EBITDA is estimated in the bracket of $288-$290 million.

The company predicts adjusted gross margin within 83-85%.

Zacks Rank and Other Stocks to Consider

Paycom Software currently carries a Zacks Rank #2 (Buy).

A few other top-ranked stocks in the broader technology sector are Twitter, Inc. TWTR, MeetMe, Inc. MEET and Verint Systems Inc. VRNT, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for Twitter, MeetME and Verint is projected at 22%, 20% and 10%, respectively.

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