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Paycom (PAYC) Surpasses on Q3 Earnings, Lifts '19 Guidance

Zacks Equity Research

Paycom Software’s PAYC third-quarter 2019 non-GAAP earnings per share came in at 70 cents, which surpassed the Zacks Consensus Estimate of 69 cents and also grew 34% year over year.

Further, the company generated revenues of $175 million, surging 31% from the year-earlier period and also outpaced the Zacks Consensus Estimate of $172 million.

Robust new business wins and the company’s high-margin recurring revenue business drove results.

Strong sales growth can be attributed to its employee usage strategy, sales efforts and investments. The first-quarter launch of differentiated product offering, Direct Data Exchange, for all Paycom Software clients is boosting customer additions.

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Moreover, the company’s top line received a 31% year-over-year positive impact in recurring revenues, which comprises 98% of the total revenue base.

The better-than-expected earnings coupled with management’s bullish guidance for the full year are expected to buoy investor confidence in the stock.

Notably, shares of Paycom Software have soared 70.8% year to date, substantially outperforming the industry’s growth of 14.5%.

Margins

Adjusted gross profit jumped 33.7% from the year-ago period to $148.6 million. The company’s adjusted gross margin expanded 170 basis points (bps) on a year-over-year basis to 85.3%.

As a percentage of revenues, total adjusted sales and marketing expenses, administrative expenses, and research and development expenses increased 30 bps to 26.7%, 80 bps to 53.9% and 180 bps to 10.3%, respectively.

Paycom Software’s adjusted EBITDA rose 35.3% year over year to $66.6 million. Adjusted EBITDA margin of 38% expanded 110 bps year over year.

Paycom Software, Inc. Price, Consensus and EPS Surprise

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

Paycom Software, Inc. price-consensus-eps-surprise-chart | Paycom Software, Inc. Quote

Balance Sheet & Cash Flow

Paycom Software exited the third quarter with cash and cash equivalents of $108.1 million compared with $94.8 million in the sequential quarter.

The company’s balance sheet comprises long-term debt of $33.1 million compared with $33.5 million sequentially.

Net cash provided by operating activities in the nine months ending Sep 30, 2019 was $176.4 million compared with $145.8 million in the year-ago period.

Guidance

For fourth-quarter 2019, Paycom Software expects revenues in the range of $188.5-$190.5 million. The mid-point of $189.5 million is higher than the current Zacks Consensus Estimate of $188.68 million.

Adjusted EBITDA is estimated in the band of $72-$74 million.

Paycom Software raised forecasts for the full year. The company envisions revenues within $733-$735 million, up from $728-$730 million predicted earlier. The mid-point of the guided range implies 30% improvement from the year-ago reported figure. The Zacks Consensus Estimate is pegged at $729.46 million.

Adjusted EBITDA is anticipated in the bracket of $311-$313 million, up from the earlier guidance of $306-$308 million.

The company projects adjusted gross margin within 84-85% compared with 83-85% envisioned earlier.

Zacks Rank and Stocks to Consider

Paycom Software currently carries a Zacks Rank #3 (Hold). A few better-ranked stocks in the broader technology sector are Benefitfocus BNFT, Five9, Inc. FIVN and NIC EGOV, each flaunting 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 Benefitfocus, Five9 and NIC is currently estimated at 20%, 10% and 18%, respectively.

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