It has been about a month since the last earnings report for Paycom Software (PAYC). Shares have lost about 0.3% in that time frame, outperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Paycom due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Paycom Q2 Earnings & Revenues Beat Estimates, Up Y/Y
Paycom Software delivered solid second-quarter 2022 performance, wherein the top and the bottom lines surpassed the Zacks Consensus Estimate.
The online payroll and human resource technology provider reported non-GAAP earnings of $1.26 per share, beating the Zacks Consensus Estimate of $1.12. The bottom line improved 29.9% from 97 cents per share reported in the year-ago quarter.
For the second quarter of 2022, Paycom reported revenues of $316.9 million, beating the consensus mark of $309.2 million and improving 31% year over year. This year-over-year upside was primarily driven by new client additions and continued focus on cross-selling to existing clients.
Quarter in Detail
Paycom’s recurring revenues (representing 98.3% of total revenues) improved 31.1% to $311.5 million in the second quarter.
Adjusted gross profit climbed 29.6% from the year-ago period to $268.2 million. However, adjusted gross margin contracted 80 basis points (bps) on a year-on-year basis to 84.6%, primarily on the workforce returning to offices and aggressive hiring.
Paycom’s adjusted EBITDA surged 37.5% year over year to $119.6 million.
Adjusted EBITDA margin expanded 180 bps to 37.7%.
Balance Sheet & Cash Flow
Paycom exited the second quarter with cash and cash equivalents of $279 million compared with $360.6 million recorded in the previous quarter.
The company’s balance sheet comprises net long-term debt of $29 million compared with the previous quarter’s $28.7 million.
During second-quarter 2022, PAYC generated operating cash flow of $51.7 million. During the first six months of 2022, Paycom generated $169 million worth of operating cash flow.
Paycom raised its guidance for full-year 2022. The company now predicts 2022 revenues between $1.354 billion and $1.356 billion compared with the earlier estimate of $1.333-$1.335 billion.
Adjusted EBITDA is now projected to be $546-$548 million compared with the prior guided range of $533-$535 million.
For the third quarter of 2022, Paycom estimates revenues between $327 million and $329 million. Management projects adjusted EBITDA of $117-$119 million.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates revision.
Currently, Paycom has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Paycom has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
Performance of an Industry Player
Paycom is part of the Zacks Internet - Software industry. Over the past month, Snap (SNAP), a stock from the same industry, has gained 5.4%. The company reported its results for the quarter ended June 2022 more than a month ago.
Snap reported revenues of $1.11 billion in the last reported quarter, representing a year-over-year change of +13.1%. EPS of -$0.02 for the same period compares with $0.10 a year ago.
For the current quarter, Snap is expected to post a loss of $0.02 per share, indicating a change of -111.8% from the year-ago quarter. The Zacks Consensus Estimate remained unchanged over the last 30 days.
Snap has a Zacks Rank #4 (Sell) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of F.
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