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Paycom (PAYC) Beats on Q2 Earnings, Raises '19 Guidance

Zacks Equity Research

Paycom Software’s PAYC second-quarter 2019 non-GAAP earnings per share came in at 75 cents, which surpassed the Zacks Consensus Estimate of 71 cents and also grew 26% year over year.

Further, the company generated revenues of $169.3 million, surging 31% from the year-earlier period and also outpaced the Zacks Consensus Estimate of $164 million, driven by new business wins.

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

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 a bullish guidance by the management for the full year are expected to buoy investor confidence in the stock.

Notably, shares of Paycom Software have soared 86.7% year to date, substantially outperforming the industry’s growth of 35%.

Margins

Adjusted gross profit jumped 33.4% from the year-ago period to $144.4 million. The company’s adjusted gross margin expanded 120 basis points (bps) on a year-over-year basis to 85.3%.

Paycom Software’s adjusted EBITDA rose 30% year over year to $69.4 million. Adjusted EBITDA margin of 41% contracted 50 bps year over year.

Balance Sheet & Cash Flow

Paycom Software exited the second quarter with cash and cash equivalents of $94.8 million compared with $91.3 million in the sequential quarter.

The company’s balance sheet comprises long-term debt of $33.5 million compared with $33.95 million sequentially.

Net cash provided by operating activities in the reported quarter was $122.8 million compared with $47.3 million in the preceding quarter.

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

Guidance

For third-quarter 2019, Paycom Software expects revenues in the range of $170-$172 million, higher than the current Zacks Consensus Estimate of $168.4 million.

Adjusted EBITDA is estimated in the band of $61-$63 million.

Paycom Software raised forecasts for the full year. The company envisions revenues within $728-$730 million, up from $718-$720 million predicted earlier. This view implies an improvement of around 29% from the year-ago reported figure at the midpoint of the range. The Zacks Consensus Estimate is pegged at $719.9 million.

Adjusted EBITDA is anticipated in the bracket of $306-$308 million, up from the earlier guided range of $296-$298 million.

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

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 Computer and Technology sector are Twitter TWTR, Alteryx AYX and Rosetta Stone RST, 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 Twitter, Alteryx and Rosetta Stone is currently estimated at 23.5%, 13.7% and 12.5%, respectively.

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