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Paycom (PAYC) Q1 Earnings Surpass Estimates, 2019 View Up

Zacks Equity Research

Paycom Software’s PAYCfirst-quarter 2019 non-GAAP earnings per share came in at $1.19 per share, which surpassed the Zacks Consensus Estimate of $1.12 and also grew 24% year over year.

The company generated revenues of $199.9 million, surging 30% from the year-earlier period and also outpaced the Zacks Consensus Estimate of $196 million, driven by new business wins.

The company’s strong software offering, focused sales efforts and its concentrated employee usage strategy are driving growth. Robust adoption of enhanced Human Capital Management (HCM) software solutions is a key catalyst.

Moreover, the company’s top line received a 30% year-over-year positive impact in recurring revenues, comprising around 98% of total revenues.

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 have soared 65.4% year to date, substantially outperforming the industry’s growth of 31.7%.

Margins

Adjusted gross profit jumped 30.3% from the year-ago period to $173.5 million. The company’s adjusted gross margin expanded 30 basis points (bps) on a year-over-year basis to 86.8%.

Paycom Software’s adjusted EBITDA rose 28% year over year to $103.3 million.

Balance Sheet & Cash Flow

Paycom Software exited the first quarter with cash and cash equivalents of $91.3 million compared with $45.7 million in the sequential quarter.

The company’s balance sheet comprises long-term debt of $33.95 million compared with $34.4 million sequentially.

Net cash provided by operating activities in the reported quarter was $47.3 million compared with $39 million in the fourth quarter of 2018.

Since the initiation of its repurchase program in 2019, Paycom has bought back more than 3.5 million shares at average price of $79.56.

Guidance

For second-quarter 2019, Paycom Software expects revenues in the range of $162.5-$164.5 million.

Adjusted EBITDA is estimated in the band of $62.5-$64.5 million.

Paycom Software raised forecasts for the full year. The company envisions revenues within $718-$720 million, up from $710-$712 million predicted earlier.

Adjusted EBITDA is anticipated in the bracket of $296-$298 million, up from the earlier guided range of $288-$290 million.

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

Management is also optimistic about strong client additions within the upper end of the company’s market, which would be up to 5,000. The launch of new Direct Data Exchange for all Paycom clients in the quarter is also likely to boost client wins.

Zacks Rank and Other Stocks to Consider

Paycom currently sports a Zacks Rank #1 (Strong Buy). A few other top-ranked stocks in the broader Computer and Technology sector are MeetMe, Inc. MEET, ACI Worldwide, Inc. ACIW and Avid Technology, Inc. AVID, all sporting a Zacks Rank of 1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for MeetMe, ACI Worldwide and Avid is projected at 20%, 12% and 10%, respectively.

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