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Paycom's (PAYC) Q3 Earnings and Revenues Surpass Estimates

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Paycom Software (PAYC - Free Report) reported better-than-anticipated third-quarter 2020 results on Wednesday. The online payroll and human resource technology provider’s adjusted earnings of 70 cents per share beat the Zacks Consensus Estimate of 56  cents and remained flat year over year.

Revenues

The company generated revenues of $196.5 million, which increased 12.3% from the year-earlier period as well as surpassed the consensus mark of $192 million. This year-over-year increase was mainly driven by new client additions which offset the negative impact of interest-rate cuts and lower headcounts at client offices.

In its earnings conference call, Paycom noted that lower headcounts at its pre-pandemic client offices resulted in approximately $2-million weekly recurring revenue loss during the quarter. Moreover, the 150-basis-point interest-rate cut in March led to an additional weekly recurring revenue loss of $350,000.

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

Margins

Adjusted gross profit increased 11.7% from the year-ago period to $166.8 million. However, adjusted gross margin contracted 40 basis points (bps) on a year-over-year basis to 84.9%.

Paycom Software’s adjusted EBITDA inched up 1.4% year on year to $67.5 million. However, adjusted EBITDA margin shrunk 370 bps to 34.3%.

Balance Sheet & Cash Flow

Paycom Software exited the September-end quarter with cash and cash equivalents of $156.4 million compared with the $113.5 million recorded in the prior quarter.

The company’s balance sheet comprises long-term debt (including current maturities) of $31.3 million compared with the previous quarter’s $31.8 million.

Cash from operations was $174.3 million in the first nine months of 2020, and the company repurchased approximately $52 million worth of its common stock.

Guidance

For the fourth quarter, Paycom Software estimates revenues between $212 million and $214 million. The Zacks Consensus Estimate is pegged at $212.9 million.

Management projects adjusted EBITDA in the range of $76 million to $78 million.

Zacks Rank & Other Stocks to Consider

Paycom currently carries a Zacks Rank #2 (Buy).

Some other top-ranked stocks in the broader technology sector include NVIDIA Corporation (NVDA - Free Report) , Paylocity Holding Corporation (PCTY - Free Report) and Covetrus, Inc. (CVET - Free Report) , all carrying a Zacks Rank #2, at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The long-term earnings growth rate for NVIDIA, Paylocity and Covetrus is currently pegged at 20.1%, 20%, and 31.6%, respectively.

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