It has been about a month since the last earnings report for Paycom Software (PAYC). Shares have added about 5.2% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Paycom due for a pullback? 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 Software Q2 Results Surpass Estimates
Paycom Software’s 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.
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.
For third-quarter 2019, Paycom Software expects revenues in the range of $170-$172 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.
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.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended upward during the past month. The consensus estimate has shifted 5% due to these changes.
At this time, Paycom has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of F on the value side, putting it in the fifth quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. 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.
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