Back to top
Read MoreHide Full Article

Paycom Software, Inc. (PAYC - Free Report) reported better-than-expectedsecond-quarter 2017 results.

The company’s adjusted earnings per share (including stock-based compensation) came in at 24 cents per share, which beat the Zacks Consensus Estimate of 13 cents. Also, reported earnings increased from 16 cents earned in the year-ago quarter.

On a non-GAAP basis earnings per share came in at 26 cents as compared with 21 cents reported in the year ago-quarter.

Further, Paycom Software’s stock price history reveals that the company has not disappointed in a long time. In fact, shares of Paycom Software have risen a whopping 39.6% in the past one year, outperforming the industry‘s increase of just 13.4%.

Quarter Details

Paycom Software reported revenues of $98.2 million, which increased 32.9% from the year-ago quarter. Revenues also beat the Zacks Consensus Estimate of $96 million. The year-over-over increase was driven by the addition of new clients, new business wins and product development initiatives.

Moreover, revenues were impacted positively by 33% increase in recurring revenues and approximately 35% increase in implementation and other revenues on a year-over-year basis.

The company’s adjusted gross margin decreased 100 basis points (bps) on a year-over-year basis to 83%, primarily due to higher cost of sale.

Paycom Software’s adjusted EBITDA increased 22.9% year over year to $27 .8 million. Adjusted operating margins during the quarter came in 23.3% as compared with 26.1% reported in the year-ago quarter. As a percentage of revenues, total administration expenses increased to 59.7% during the quarter from 58.3% reported in the year-ago period.

Non-GAAP net income came in at $15.2 million compared with $12.4 million reported in the year-ago quarter.

Balance Sheet & Cash Flow

Paycom Software exited the second quarter with cash and cash equivalents of $68.1 million compared with $92.9 million in the previous quarter. Receivables were $1.8 million, flat quarter over quarter.

Paycom Software’s balance sheet comprises long-term debt of $33.5 million compared with $30.4 million reported in the previous quarter. The company reported cash flow from operations of $55.3 million during six months ended Jun 30, 2017.

During the quarter, the company repurchased approximately 460k shares as part of previously extended $50 million share repurchase program.


For third-quarter fiscal 2017, Paycom Software expects revenues in a range of $99–$101 million. The Zacks Consensus Estimate is pegged at $99.5 million. Adjusted EBITDA is expected to be approximately in a range of $21–$23 million.

Paycom Software updated fiscal 2017 guidance. The company now anticipates revenues in a range of $429.5–$431.5 million (previously $426–$428 million). The Zacks Consensus Estimate is pegged at $429.2 million. Adjusted EBITDA is now expected to be approximately in a range of $122.5–$124.5million (previously $117–$119 million).

Our Take

Paycom Softwarereported stellar second-quarter 2016 results and provided an encouraging third quarter and fiscal 2017 revenue guidance. Also, both the top line and the bottom line increased on a year-over-year basis.

Revenue growth seems to be steady and was positively impacted by higher recurring revenues and higher traction in cloud-based offerings. Better-than-expected demand for advanced human capital management and payroll software solutions during the reported quarter were the other positives.

We believe that the higher adoption of Paycom Software’s Affordable Care Act (“ACA”) dashboard application that tracks employee count, employee status and health care plan affordability will act as a tailwind in the long run. Further, Paycom Software might witness long-term growth by successfully cross-selling newer products to the existing client base, which will boost revenues, going forward.

Nevertheless, competition from companies like Paylocity Holding Corporation (PCTY - Free Report) , Intuit Inc. (INTU - Free Report) and Paychex, Inc. remains a headwind.

Currently, Paycom Software carries a Zacks Rank #3 (Hold). A better-ranked stock in the broader technology sector is Applied Optoelectronics, Inc. (AAOI - Free Report) , sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Applied Optoelectronics has a long-term EPS growth rate of 18.75%.

More Stock News: Tech Opportunity Worth $386 Billion in 2017                

From driverless cars to artificial intelligence, we've seen an unsurpassed growth of high-tech products in recent months. Yesterday's science-fiction is becoming today's reality. Despite all the innovation, there is a single component no tech company can survive without. Demand for this critical device will reach $387 billion this year alone, and it's likely to grow even faster in the future.

Zacks has released a brand-new Special Report to help you take advantage of this exciting investment opportunity.  Most importantly, it reveals 4 stocks with massive profit potential. See these stocks now>>

More from Zacks Analyst Blog

You May Like