Why Is Paycom (PAYC) Down 7.2% Since Last Earnings Report?
A month has gone by since the last earnings report for Paycom Software (PAYC). Shares have lost about 7.2% in that time frame, underperforming 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 the most recent earnings report in order to get a better handle on the important drivers.
Paycom Q4 Earnings and Revenues Surpass Estimates
Paycom ended 2023 on a strong note by delivering solid fourth-quarter results, wherein both the top and bottom lines surpassed the Zacks Consensus Estimate and improved year over year.
The online payroll and human resource technology provider reported non-GAAP earnings of $1.93 per share in the fourth quarter, beating the Zacks Consensus Estimate of $1.78. The bottom line improved 11.56% from $1.73 per share reported in the year-ago quarter.
In the fourth quarter of 2023, Paycom reported revenues of $434.6 million, beating the consensus mark of $422.6 million. The top line improved 19.4% year over year. The top-line figure also surpassed management’s previous guidance of $420-$425 million, primarily driven by new logo wins, partially offset by a dip in cross-selling to the existing clients.
Quarter in Detail
Paycom’s Recurring revenues (representing 98.3% of the total revenues) improved 17.4% to $427.3 million in the fourth quarter. Our estimate for the company’s Recurring revenues was pegged at $414.8 million.
The company’s revenues from the Implementation and Other segment improved to $7.3 million from $6.6 million in the year-ago quarter and contributed 1.7% to total sales. Our estimate for the division’s revenues was pegged at $7.7 million.
Adjusted gross profits climbed 15.8% from the year-ago period to $362 million. However, the adjusted gross margin contracted 100 basis points (bps) on a year-over-year basis to 83.3%.
Paycom’s adjusted EBITDA increased 7.7% year over year to $176.6 million. The adjusted EBITDA margin contracted 360 bps to 40.6%.
Balance Sheet & Cash Flow
Paycom exited the fourth quarter with cash and cash equivalents of $294 million compared with $484 million recorded in the previous quarter. In the fourth quarter, the company had no long-term debt, representing a decrease from the net long-term debt of $29 million in the previous quarter.
In the fourth quarter of 2023, PAYC generated an operating cash flow of approximately $134.5 million, paid out $21.5 million in dividends and bought back $212.9 million worth of its common stock. In 2023, the company generated an operating cash flow of approximately $485 million. During the year, it bought back shares worth $286.6 million and paid $64.8 million in dividend.
The company has $800 million remaining under its buyback authorization as of Dec 31, 2023. Paycom’s board has approved its upcoming quarterly dividend of 37.5 cents per share, payable in March 2024.
Guidance
For the first quarter of 2024, Paycom forecasts revenues in the range of $494-$497 million and expects adjusted EBITDA between $218 million and $222 million.
For 2024, PAYC forecasts revenues in the band of $1.860-$1.885 billion and expects adjusted EBITDA in the range of $720-$730 million.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month.
The consensus estimate has shifted -5.88% due to these changes.
VGM Scores
Currently, 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.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Paycom has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.
Performance of an Industry Player
Paycom belongs to the Zacks Internet - Software industry. Another stock from the same industry, Aspen Technology (AZPN), has gained 10.9% over the past month. More than a month has passed since the company reported results for the quarter ended December 2023.
Aspen Technology reported revenues of $257.16 million in the last reported quarter, representing a year-over-year change of +5.9%. EPS of $1.37 for the same period compares with $0.35 a year ago.
For the current quarter, Aspen Technology is expected to post earnings of $1.63 per share, indicating a change of +53.8% from the year-ago quarter. The Zacks Consensus Estimate remained unchanged over the last 30 days.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Aspen Technology. Also, the stock has a VGM Score of F.
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Paycom Software, Inc. (PAYC) : Free Stock Analysis Report
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