Paycom Software Up on Q3 Revenue Beat, Earnings in Line

Shares of Paycom Software, Inc. PAYC went up 4.1% in after-hours trading yesterday, after the company reported better-than-expected third-quarter 2015 revenues. Also, the company provided encouraging fourth quarter as well as 2015 revenue guidance, which positively impacted the share price.

The company’s adjusted earnings per share (including stock-based compensation) came in at 7 cents per share, in line with the Zacks Consensus Estimate. Nonetheless, reported earnings increased from 5 cents earned in the year-ago quarter.
 

Paycom Software Inc. - Earnings Surprise | FindTheBest

Quarter Details

Paycom Software reported revenues of $55.3 million, which not only increased 51.2% from the year-ago quarter but also came ahead of the Zacks Consensus Estimate of $50 million. The year-over-over increase was driven by a shift toward cloud-based offerings, which gained traction in the marketplace. Also, new client additions positively impacted quarterly revenues.

Moreover, revenues were impacted positively by a 51% increase in recurring revenues and a whopping 60.9% increase in implementation and other revenues on a year-over-year basis.

Notably, annualized new recurring revenue (ANRR) came in at $31.8 million, during the quarter, demonstrating an increase of 113% year over year.

The company’s adjusted gross margin (excluding one-time items but including stock-based compensation) increased 149 basis points (bps) on a year-over-year basis to 83.9%, primarily due to the company’s continued focus on streamlining costs and higher revenue base.

Paycom Software’s adjusted operating margin (including stock-based compensation) decreased from 12.8% reported in the year-ago quarter to 12.4%, primarily due to higher operating expenses as a percentage of revenues. As a percentage of revenues, expenses increased to 71.5% during the quarter from 69.6% reported in the year-ago period.  

The company’s adjusted net income (excluding one-time items but including stock-based compensation) came in at $3.9 million or 7 cents per share, which improved from $2.7 million or 5 cents reported in the year-ago quarter. On a GAAP basis, net income was $3.8 million compared with $2.7 million reported in the year-ago quarter.

Balance Sheet & Cash Flow

Paycom Software exited the third quarter with cash and cash equivalents of $48.5 million compared with $42.7 million in the previous quarter. Receivables were $3.4 million compared with $2.6 million in the previous quarter.

Paycom Software’s balance sheet comprises long-term debt of $25.2 million compared with $20 million reported in the previous quarter. The company reported cash flow from operations of $34.1 million for the nine months ended Sep 30, 2015.

Guidance

For the fourth quarter of fiscal 2015, Paycom Software expects revenues in the range of $59.5 million to $61.5 million. The Zacks Consensus Estimate is pegged at $55 million. Adjusted EBITDA is expected to be approximately in the range of $9 million to $11 million.

For fiscal year 2015, Paycom Software expects revenues in the range of $219 million to $221 million. The Zacks Consensus Estimate is pegged at $210 million. Adjusted EBITDA is expected to be approximately in the range of $46.5 million to $48.5 million.

Our Take

Paycom Software reported modest third-quarter fiscal 2015 results, with its top line surpassing the Zacks Consensus Estimate and the bottom line matching the same. The company provided an encouraging fourth-quarter and fiscal 2015 revenue guidance. Also, year-over-year comparisons on both counts were favorable. The results were driven by a shift toward cloud-based offerings and new client additions.

Revenue growth seems to be steady and was positively impacted by higher recurring revenues and higher traction in cloud-based offerings. Better-than-expected demand for advanced human capital management and payroll software solutions during the reported quarter were the other positives.

We believe that higher traction of Paycom Software’s Affordable Care Act (“ACA”) dashboard application that tracks employee count, employee status and health care plan affordability will act as a tailwind for the company in the long run. Also, Paycom Software might witness long-term growth by successfully cross-selling newer products to the existing client base, which will boost revenues, going forward.

Nevertheless, competition from companies like Paylocity Holding Corporation PCTY, Intuit Inc. INTU and Paychex, Inc. remains a headwind.

Currently, Paycom Software has a Zacks Rank #3 (Hold). A better-ranked stock in the technology sector is Facebook, Inc. FB, sporting a Zacks Rank #1 (Strong Buy).

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